Moody's Investors Service said it has assigned an A1 rating to Santa Clara County's refunding lease revenue bonds (capital projects) 2012 Series A, issued by Santa Clara County Financing Authority, and downgraded to Aa2 from Aa1 the county's general obligation bond rating; downgraded to Aa3 from Aa2 the rating on the county's pension obligation bonds; and downgraded to A1 from Aa2 the ratings on the county's outstanding lease backed obligations. The outlook on these ratings is stable.
The downgrades reflect the county's significantly weakened financial position, following three consecutive years of general fund deficits (2009-2011), and the limited prospects for rebuilding the county's balance sheet in the current economic environment.
The county's operating deficits have reduced its year-end general fund balance and liquidity to very low levels, even for the new ratings.
The assigned ratings also reflect the county's very strong tax base, solid long-term economic fundamentals, and above average socioeconomic profile.
The county's favorable debt position--which despite the county's aggressive borrowing in recent years, remains manageable--and its generally favorable pension and retiree health positions also figure positively in the ratings.
The county's recent, now amicably resolved dispute with the city of San Jose regarding property tax distributions to the city's former redevelopment agency was not a factor in the rating action.
The two notch, rather than one notch, downgrade of the lease backed obligations is the result of the county's weakening financial position.
The county's previously strong financial position, coupled with the then low lease burden, had lead to an atypical, one notch distinction between the GO rating and the rating on lease backed obligations.
With the weakening of the county's financial position this atypical distinction no longer applies. The current two notch distinction represents Moody's standard notching for California abatement lease-backed obligations.
Broadly speaking the two notches reflect the risk of abatement and the narrower, general fund security pledge for leases compared to the very strong, voter-approved unlimited property pledge securing general obligation bonds.
Bond proceeds will be used for a new health information system at Santa Clara Valley Medical Center and other technological needs. The leased asset will be County jail, the value of which is estimated to be in excess of the amount of the bonds.