California City With $800,000 Manager Has Ratings Lowered to Junk by Fitch
Bell, the Los Angeles suburb that paid its city manager almost $800,000 a year, had its credit cut to junk grade by Fitch Ratings on concern the city may default on debt and had improperly raises taxes to pay off bonds.
Fitch said it lowered the rating on $50 million of general obligation bonds seven steps to BB, or junk, from A+, and to BB- from A+ on $7.5 million of pension bonds sold in 2005. Standard & Poor’s took similar actions Aug. 10.
The actions follow Los Angeles Times reports that Robert Rizzo, Bell’s manager, got almost $800,000 a year and that part- time city councilors took home almost $100,000 annually, mostly by serving on municipal boards and commissions. Rizzo and two other top officials have since resigned. A state audit said the Bell City Council improperly raised property taxes in 2005 to cover pension bond costs, and ordered the money refunded.
“The current uncertainty regarding the city’s management composition and its impact on operating policies and practices, as well as the lack of timely information from the city” caused it to put Bell debt on watch for a possible cut, Fitch said.
Bell, located about 10 miles (16 kilometers) southeast of Los Angeles, has a largely Latino population of 38,000. The city’s latest annual report put per-capita income at $24,800 in 2008. Statewide, the figure was almost $42,700 that year, Bloomberg data show. About a quarter of Bell residents live in poverty, according to the website City-Data.com.
On Nov. 1, the community must pay the so-called bullet maturity on $35 million of taxable lease-revenue bonds sold in 2007 by its Public Financing Authority in a private placement. The principal must be repaid when bullet-maturity loans are due.
Soured Land Deal
The city issued debt to buy an industrial tract with plans to lease the property to Berkshire Hathaway Inc.’s Burlington Northern Santa Fe railroad, the Times reported. That deal fell through after the city was sued for failing to conduct adequate environmental reviews, the newspaper said.
Bell has fallen behind on its payments on the bonds, which are owned by Dexia SA, the Paris- and Brussels-based bank, said Ulrike Pommee, a spokeswoman in Brussels. The bank entered into an agreement with the city in June aimed at resolving the issue, she said yesterday by e-mail.
A Bell general-obligation bond with a 4 percent coupon maturing in 2017 traded at par today, according to data compiled by Bloomberg.
California Attorney General Jerry Brown has subpoenaed the personal financial records of present and former Bell officials and said he’s reviewing the possibility of voter fraud. A Los Angeles County grand jury has also sought documents and financial records, the Times has reported.
To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net
Rate this Page