SAN FRANCISCO - Standard & Poor's suspended its credit ratings on three Victorville, Calif., agencies after the Southern California city failed to garner unqualified audit opinions for its just-completed 2007 financial reports.
The agency suspended its BBB-plus rating on the Victorville Redevelopment Agency's Bear Valley Road Redevelopment Project Area tax allocation bonds, its A-minus rating on the Southern California Logistics Airport Authority's senior-lien tax allocation bonds, its BBB rating on the airport's subordinate debt, and its A-minus rating on the Baldy Mesa Water District's certificates of participation and improvement bonds.
"These actions result from our inability to obtain up-to-date and independently audited financial statements for these related municipal entities," Standard & Poor's said in a release. "We have also been unable to confirm the current liquidity levels available for the next debt service payments on each of these issues, which we believe may be cause for concern, given previous inter-fund transfers among the funds supporting each issue, as well as with other city funds."
Victorville is a city of about 100,000 people, located about 80 miles northeast of Los Angeles. Like other cities in the so-called Inland Empire, the fast-growing city has been hit hard by the housing market's collapse. It has also recently replaced its city manager.
All told, the city and its enterprise funds had about $410 million of debt outstanding at the end of 2007. The bulk of the debt was issued by the airport authority to fund redevelopment of the decommissioned George Air Force Base as a multimodal transportation and distribution hub for Southern California.
"The city has not maintained adequate internal control and accounting records for the year ended June 30, 2007," according to its independent auditors report, which was prepared by the accounting firm of Caporicci & Larson. The firm said it could not certify the city's financial statements because the may be "materially misstated and may not represent fairly the financial position and respective changes in financial position of the city."
Victorville has not yet completed its official response to the audit opinion, which was released in March, said assistant finance director Adele Mosher. She said the city has taken corrective action to address auditors' concerns and expects to receive an unqualified audit opinion on its 2008 financial reports. Mosher said she hopes Standard & Poor's will reinstate the city agencies' credit ratings after the 2008 audit is completed.
In the meantime, the city has re-hired its former city manager Jim Cox, who retired in 2000 after more than 30 years with the city. He has ordered all city departments to prepare 20% spending cuts and ordered a halt to hiring and discretionary spending to keep the city's budget in balance, said spokeswoman Yvonne Hester.
The housing bust has hit the city hard. Housing construction permits fell from almost 3,500 in fiscal 2006 to an estimated 100 in the current fiscal year, according to the 2007 financial reports. The general fund has posted multi-million dollar deficits over the past three fiscal years.