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VENTURA COUNTY NEWS

Bond Company Lowers County's Long-Term Rating

Credit: Moody's cites budget deficit and Medicare scandal for the 'negative outlook.' Budget official calls decision premature.

May 13, 2000|MATT SURMAN and GINA PICCALO | SPECIAL TO THE TIMES

A leading New York bond-rating firm has lowered Ventura County's credit-worthiness rating, saying the county would be on shaky financial ground during another recession.

Moody's Investor Services informed local officials Friday that it had lowered the county's long-term credit rating from an A-1 to an A-2 with a "negative outlook," which would make it more expensive for the county to borrow money for long-term projects, such as construction.

The company based its decision on the county's $5-million budget deficit and its $25-million debt from a Medicare billing scandal,

"It's sort of been hanging over our heads for some time," County Auditor Tom Mahon said. "They're watching us and they want to see what the county's doing to shape up. It's a little thing, so that if something happens, they can say 'We told you so.' "

Mahon said that a ballot initiative spearheaded by Community Memorial Hospital likely clinched the rating agency's decision to downgrade Ventura County's credit. The measure would transfer control of $260 million in tobacco settlement funds from county coffers to private hospital administrators, meaning the county would be unable to use those funds to bail itself out.

In the past, the county's conservative investment approach and ability to maintain strong financial reserves have earned it a high long-term bond rating--among the highest in California, Mahon said. Analysts characterized the new Moody's rating as being in the average range.

Mahon said the county still expects the company to give it a top rating for any short-term borrowing needs. He added that he still hopes to reestablish the county's long-term rating before it affects any of the county's projects, including a planned $63.5-million juvenile facility, of which the county is required to finance $23 million.

The county has no other long-term borrowing plans in the near future, Mahon said.

The county's financial worries began in 1998 after a disastrous attempt to merge its mental health and social services departments, and the county was subsequently fined by federal officials for improper Medicare billing.

Bert Bigler, deputy chief administrative officer, said the current rating downgrade may be premature, because the county won't present its fiscal 2000-01 budget until June.

Moody's "just didn't wait long enough to see what's going to happen," Bigler said. "But it's also reinforcing the need to make some budget cuts."

State funding and more cost trimming could resolve some of the county's fiscal troubles, he said.

"We still don't know what's going to come down from the state," Bigler said. "Cuts aren't the only answer."

Supervisor Frank Schillo, who owns a financial consulting firm, said that though he is surprised Moody's issued the downgraded rating before the county's budget is presented, "we probably have done enough messing around in the county to deserve it."

Schillo said he still has faith in the abilities of Chief Administrative Officer Harry Hufford--whose reputation county officials once hoped could insulate the county from a lower bond rating--to pull the county out of its financial quagmire.

"I think they will change their minds when Harry's finished," Schillo said. "We're going to stay our course and we'll come in with a balanced budget for this upcoming fiscal year and the next. And if we don't, shame on us."

Mahon said the county could still save its credit rating. He said he and other county officials will visit New York during the first week of June to meet with the rating agencies and let them know of the county's strategy for solving its financial problems within its new budget.

That just might work, according to economic analysts and could be very effective in changing the county's ratings.

"A lot of times [the agencies] don't get the full story. They're just reading the papers," said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. "But, [county officials] will probably get a lot of very hard questions. Basically, the county has to come up with a strategy the ratings agencies feel is viable."

Kyser said that Orange County's municipal bankruptcy in 1994 triggered closer scrutiny of all of California's counties--and the fiscal behavior of their government leaders--by the New York bond agencies.

"There's still the memory of that bankruptcy in the banks and financial institutions," he said. "There have been tensions between the board of supervisors and the CAO. They need to put aside their personality conflicts and move very quickly."

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Surman is a Times staff writer, Piccalo is a Times Community News reporter.

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