Bonds downgraded as property values plunge $1.6 billion


VICTORVILLE • Moody’s Investors Services has downgraded more than $90 million in Southern California Logistics Airport Authority bonds to near-junk status, citing concern over whether the city will be able to continue covering the hefty debts amid plummeting property values.

Moody’s reports that property values are down more than $1.6 billion from last year in the 90,000-acre redevelopment area surrounding former George Air Force Base.

As property values drop, so does the amount of tax revenue flowing to every local city as members of the redevelopment area managed by the Victor Valley Economic Development Authority.

Victorville, Apple Valley, Hesperia, Adelanto and unincorporated San Bernardino County all receive a share of tax increment generated as property owners add value to land in VVEDA’s boundaries through new construction or infrastructure improvements.

But Moody’s report indicates the recent economic crisis has rolled property values in this area back some 60 percent since their 2007 peak.

The problem is that a portion of the joint redevelopment agency’s shrinking tax increment is pledged to secure nine SCLAA bonds with outstanding balances totaling more than $336 million, according to a report filed by Victorville last week with the Municipal Securities Rulemaking Board.

Victorville made its annual $11 million debt payment on these bonds Dec. 1 using tax increment left over from the 2008-09 fiscal year, according to city spokeswoman Yvonne Hester.

But with property values down nearly 18 percent from last year, the city’s MSRB report shows the SCLAA only has a debt coverage ratio of 1.07 — meaning revenue only exceeds annual debt payment by 7 percent, or $1.2 million. Most lenders expect a minimum ratio of 1.2, with revenue exceeding debt payments by at least 20 percent.

This narrow ratio is what led to Moody’s knocking two sets of SCLAA bonds from a Baa3 rating to Ba2, which the agency defines as bonds with “questionable credit quality” that are “not well safeguarded in the future.”

Another SCLAA bond series dipped slightly from a Baa2 to a Baa3.

Aside from massive declines in property value, which officials hope will stabilize during the coming fiscal year, the MSRB report states the solvency of SCLAA is also threatened by a state raid to RDA funds.

To balance its own massive budget deficit, the state opted in August to take $2 billion from redevelopment agencies across California. Local cities have joined the California Redevelopment Agency in a lawsuit fighting this raid.

If that suit isn’t successful and VVEDA has to pay out up to $14.7 million over the next two years, the MSRB report states, “it will significantly constrain the Agency’s financial capacities to meet its debt obligations over the next few years.”

The city’s last audit shows SCLAA is already in the hole, carrying a nearly $55 million deficit as of June 30, 2008, and estimates of a nearly $75 million deficit by June 30, 2009. The audit report for that fiscal year is due for release in January.

When questioned about the city’s ability to cover the next round of debt service in light of these mounting concerns, Victorville’s Economic Development Director Keith Metzler said cash flow projections remain positive through June 2011 — even if VVEDA has to give up millions to the state.

And if the RDAs win the suit, Metzler said SCLAA will use that pledged money to pay down debt, bulk up reserves or make capital improvements.

One bright note for the coming year is a $120 million property value leap as Dr Pepper Snapple Group finishes construction on its bottling plant at SCLA.

This tax revenue could not be included in the MSRB report, it states, since the project is still a few months from being completely operational.

Brooke Edwards may be reached at (760) 955-5358 or at