Declining property values were a key factor in a two-notch downgrade Moody’s Investors Service dealt Tuesday to the Ripon Redevelopment Agency.

Moody’s downgraded to Baa2 from A3 the agency’s Ripon Community Redevelopment Project tax allocation bonds Series 2003, 2005 and 2007.

“The downgrade is based upon the declining assessed value (AV) in the project area, which has resulted in debt service coverage significantly narrower than anticipated, and the potential for additional declines in the future,” according to a news release from Moody’s.

The redevelopment area is predominantly residential, and the San Joaquin County community is located in the Central Valley, one of the areas most heavily affected by the residential real estate market downturn.

Assessed property valuation in the project area fell by 11% from fiscal 2009 to fiscal 2010, narrowing debt service coverage ratios on the tax allocation bonds.

“Given the depth of the decline in market values, additional AV reductions cannot be ruled out and would likely result in downward pressure on the rating, given the narrowness of debt service coverage,” Moody’s said.

As a counterpoint, the Ripon agency enjoys above-average liquidity, which Moody’s describes as “an important near-term mitigating factor.”

The downgrade affects about $31.5 million in debt.

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