LOS ANGELES — Vernon, Calif., voters’ rejection of an increase in the utility users tax is a credit negative for the city’s electric utility, says Moody’s Investors Service.
An April ballot measure that would have raised the utility users tax to 6% from 1% failed.
In October, Moody’s downgraded the electric system’s revenue bonds two notches and gave them a negative outlook. The Series 2008A, Series 2009A and Series 2012A and B bonds were downgraded to Baa3 from Baa1 with Moody’s citing weak financial metrics.
The rate increase would have ended the electric utility requirement that it transfer funds to the city.
“The utility's general fund transfers and utility loans to help fund the general government are a major source of its relatively weak credit quality,” Moody’s analysts wrote in a weekly credit report.
The tax increase would have raised an estimated $11 million in fiscal 2018, enabling the utility to halt the transfers.
The transfer represented 11% of the utility's $166.7 million fiscal 2016 revenues and 27% of the city's general fund revenues, Moody’s said.
The city has one of the highest debt burdens among city-owned electric utilities with $385 million in outstanding debt as of December 31, 2016, Moody’s said.
The largely industrial city, located south of downtown Los Angeles, has more only 211 residents, but more than 1700 businesses.