SANTA ANA — The upgrading of Orange County's Wall Street credit rating last week was both a financial and an emotional boost for a county that has waged a three-year struggle to get out of bankruptcy.
But the action by Moody's Investors Service does little in itself to ease the county's budget picture.
And it does not provide immediate funding for the dozens of delayed projects--from jail construction to facilities maintenance--that were put on hold because of the financial collapse.
Rather, county officials and bond industry experts agree, the strengthened rating represents an important step that, along with other improvements, could result in more money for county projects two or three years down the road.
The county is in the process of drawing up a comprehensive long-term financial plan that attempts to forecast county income and expenses, as well as project the costs of 30 high-priority projects.
Officials say the results probably will be depressing--with projected funding needs far outweighing tax and fee revenue.
"Our pent-up demand for projects is going to overwhelm our cash available," said Gary Burton, the county's chief financial officer. "But with this plan, we are trying to get ahead of the curve. We are trying to map out what our needs are over the long-term so we don't get hit on the head every year."
Finding creative ways to pay for some long-delayed county projects doesn't just make political sense. It should also help the county earn further upgrades in its credit rating.
Moody's, whose credit ratings are closely followed by the investment community, indicated as much when it announced its action last week, saying it still had concerns about jail overcrowding and the county's ability to live within its budget.
Still, the rating agency said the county has made enough progress since the December 1994 bankruptcy to earn "investment grade" ratings on general obligation bonds and certificates of participation.
Since the bankruptcy, the county's outstanding debt carried "junk bond" status. With the improved rating, the county will now be able to borrow money without incurring the inflated interest and insurance costs it now must pay.
Eventually, the county will be able to float more bonds at economical rates to pay for big-ticket items such as expansion of the James A. Musick Branch Jail in Irvine or construction of a new courthouse in the South County.
Those are just two of the projects vying for funds. Others include Juvenile Hall and the Orangewood Children's Home, both of which are severely overcrowded and in need of expansion. Judges say the Municipal Courthouse in Santa Ana also requires $30 million in improvements, while a new home is needed for the county's animal shelter.
Despite these needs, Burton and other officials said, the county probably won't try to issue any new bonds for at least a few years.
"We are making a concerted effort to stay out of debt and go to the market only when we have a good reason," Burton said. "To do otherwise would be bad business."
Zane Mann, publisher of the California Municipal Bond Advisor, said the slow approach makes sense. "Even with the upgrade, the bankruptcy is still a shadow over the county," he said.
County supervisors have expressed doubts about going deeper into debt, noting that the county must pay off $800 million in "recovery bonds" it issued last year to get out of bankruptcy.
Another potential source of money for delayed projects is the $108-million fund the county created to cover the inevitable cash shortages that occur between tax-collection periods.
Before the county's financial collapse, it used to raise cash to cover those shortfalls by issuing so-called tax revenue anticipation notes (TRANs), an option that has been closed to the county since the bankruptcy.
Some of the proceeds of the recovery bond issue was set aside to cover these seasonal shortfalls, and money is taken out of the account when needed and replaced after tax revenue comes in.
The recovery plan prohibits the county from spending the funds for any other purpose until it can resume borrowing on Wall Street to cover the cash shortages. With the improved investment rating, all or a portion of the $108-million account could be used for other purposes.
But several supervisors said the entire fund should be used for early repayment of bankruptcy debts. Early bond retirement, they argued, would save the county tens of millions of dollars in interest payments.
Another potential windfall might come from successful litigation against the financial institutions the county blames for their role in causing the bankruptcy. But school districts and cities will be the first in line to receive money from any settlements or court victories. The county won't receive any money until after litigation proceeds top $600 million.