Standard & Poor's cut its rating on the City of Industry's sales tax revenue bonds to A-minus from A-plus Wednesday ahead of a $44.8 million bond sale.
The downgrade reflects "sizable actual and projected decreases in sales tax revenues, stemming from the economic downturn and weakening auto sales and building activity within the city," analyst Michael Taylor said in a report.
Industry is a city of just 885 people, but home to one of Los Angeles County's biggest concentration of retailers, manufacturers and warehouses. Despite its tiny residential population, the San Gabriel Valley community provides 68,000 jobs.
Its sales tax collections, which provide about 65% of its general fund revenues, fell 16.2% in fiscal 2009 and are projected to fall another 18.7% in fiscal 2010, according to Standard & Poor's.
"Given the economic decline and corresponding losses in sales tax revenues, in our view, the future debt service coverage levels remain unclear," Taylor wrote. Projected 2010 tax collections offer "sufficient coverage" at 1.16-times maximum annual debt service, he said, adding that the city's long-term prospects for additional growth help offset the near-term weakness in receipts.
"We expect that sales tax revenues will continue to adequately support debt service coverage on the Series 2010 bonds and parity debt obligations," Taylor said. But "additional material decreases in sales tax revenues and further decreases in coverage, or drawing upon debt service reserve fund balances, would pressure the rating downward."
