California Cities Face Downgrade on Debt, Moody’s Says

The debt of 30 California cities, including Oakland, Fresno and Sacramento, has been placed under review for downgrades because of economic pressures in the state, Moody’s Investors Service said.

The examinations may affect $14.3 billion in lease-backed and general-obligation debt issued by the municipalities, the New York-based company said yesterday in a statement.

“California cities operate under more rigid revenue- raising constraints than cities in many other parts of the country,” Eric Hoffmann, who heads Moody’s California local government ratings team, said in a statement. “Combined with steeply rising costs, these constraints mean that these cities will likely recover more slowly than their peers nationally, even if the state’s economic recovery tracks the nation’s.”

Communities in California have struggled to stay afloat by cutting staff and services to make up for a drop in sales and property tax revenue in the wake of the recession. Stockton, San Bernardino and Mammoth Lakes have gone into bankruptcy court since June.

Moody’s said it identified the credits as part of a broader review started in August of 95 rated cities in California.

The general-obligation bond ratings of Los Angeles, now Aa3, fourth-highest, and San Francisco, Aa2, third-highest, are on review for upgrades, Moody’s said.

Cities with debt under review for downgrades include Azusa, Berkeley, Colma, Danville, Downey, Fresno, Glendale, Huntington Beach, Inglewood, Long Beach, Los Gatos, Martinez, Monterey, Oakland, Oceanside, Palmdale, Petaluma, Rancho Mirage, Redondo Beach, Sacramento, San Leandro, Santa Ana, Santa Barbara, Santa Clara, Santa Maria, Santa Monica, Santa Rosa, Sunnyvale, Torrance and Woodland, Moody’s said.

In addition, the pension-obligation bonds of several issuers were downgraded, Moody’s said, including Downey, Fresno, Oakland, Oceanside, San Leandro and Santa Rosa.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net