Bonds sold by Santa Cruz County's redevelopment agency could still be downgraded because of a dispute with the California Department of Finance, according to Fitch Ratings.

Fitch said in a report Tuesday that it will keep $157 million of A-rated tax allocation bonds issued by the county's former redevelopment agency on rating watch negative because the county, as the successor agency for the RDA, disagrees with the state over distribution of tax money.

The county believes it doesn't owe the state $11.6 million the state has tallied and has only paid about $600,000 in order to keep enough money on hand to pay debt service on Sept. 1, according to Fitch.

Fitch said the county is negotiating with the Department of Finance to resolve the dispute, which could likely result in the county no longer required to pay the outstanding balance.

"Fitch views this as a positive development and expects to remove the rating watch once the agreement is finalized, which management expects over the next couple of weeks," the report said.

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