Compton CRA bonds take a dive
COMPTON—Compton took another financial hit on Wednesday, Aug. 8, when Standard and Poor's Ratings Services lowered its rating on some of the Compton Community Redevelopment Agency’s bonds, dropping the securities five notches from A+ to BBB-.
The move affects series 2006A senior-lien bonds, which are the first securities placed upon a property before other liens.
The firm also lowered its rating on the agency's series 2010A subordinate-lien housing tax allocation bonds issued in conjunction with a redevelopment project, 2010B subordinatelien TABs, and 2010C subordinate-lien taxable TABs, dropping them three notches to BBBfrom A-.
Standard and Poor’s is a division of The Mc- Graw-Hill Companies, which publishes financial research and analysis.
“The rating agency cited the lack of an auditors’ opinion on the city’s financial audit for fiscal year 2010-2011, the general fund deficit, budget challenges and cash flow concerns as its reasons for the downgrade,” City Controller Stephen Ajobiewe told the City Council.
Standard and Poor's placed the city lease revenue bonds on credit watch with negative implications on Friday, July 6.
“The downgrades reflect a belief that pooled cash issues could cause Compton some difficulty making timely payments,” the report said. “While we consider the city's current redevelopment project revenue receipts adequate for debt service coverage, which is the amount of export earnings needed for annual interest and principal payments on external debts, we believe that its current general fund deficit and city projections indicate continued financial distress.”
Audit firm Mayer Hoffman McCann completed a preliminary audit with a disclaimer of opinion and resigned on June 27. The city must complete its annual audit no later than 90 days after being placed on credit watch or the rating agency can withdraw or suspend its bonds ratings.
The firm attributed the impasse to the letter written by Mayor Eric J. Perrodin to State Controller John Chiang on Dec. 1, 2011, alleging fraud, waste and abuse of public money within City Hall.
City Manager Howard Duffey began searching for a forensic audit firm to address Perrodin’s concerns after receiving approval on Tuesday, July 24. Council members discussed using the Los Angeles County Auditors as one possible solution to the stalemate. The city still needs a completed single audit report after the forensic audit.
“If Compton provides timely independently audited financial statements with an opinion, we could maintain the ratings,” the report said.
The combined 2,635-acre CRA project area covers 39 percent of Compton.
“We recognize that the irregularly shaped project area contains most of the city's major commercial streets, as well as industrial developments in south Compton and the civic center area,” the report said. “The 1991 merger of the Rosecrans project area (the oldest project area with 90 acres of commercial and residential use) and the Walnut project area (1,464 acres of predominately industrial property formed through various amendments) as well as the addition of the new territory A-1 (977 acres evenly divided between industrial, residential, and commercial use) formed the current merged project area.”
The tax-increment revenue from the current merged project area secures the bonds.
“This merged project area primarily consists of 59 percent industrial, 23 percent commercial, and 18 percent residential properties,” the report said.
Total fiscal 2012 assessed value decreased by 0.3 percent to $2.2 billion. The incremental AV decreased by the same amount to $1.8 billion.
“Although tax-increment revenue from all subareas secures the bonds, we understand that Compton calculates tax-increment revenue separately for each project area, and each has a distinct base year,” the report said. “The 10 leading taxpayers account for 30 percent of its AV.”
Compton City Manager Howard Duffey said the city is diligently addressing the rating agency’s issues.
“I am confident that the city of Compton will address the concerns stated within the report,” he said.
The next City Council meeting is on Tuesday, Sept. 4.