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County Seeks to Keep Good Bond Rating

Finances: Analyst says its short-term credit probably won't change despite budget problems. Long-term ranking has gone down a notch.


As county leaders prepare for a trip to bond rating firms next week, one Wall Street analyst said Tuesday that the county's credit rating on short-term loans probably won't be downgraded even though the county is facing financial problems.

Kevork Khrimian, a senior analyst with Moody's Investor Services, said he has "no reason to expect" the short-term rating to drop from its MIG-1 status, the highest municipal bond rating possible.

That's good news given that each year, the county borrows and pays back between $75 million and $100 million to ease cash flow while waiting for property and sales taxes to reach its coffers. However, a recent downgrading in its long-term bond rating means that it will probably pay higher interest rates on future construction projects, such as a planned juvenile justice complex.

In an effort to improve the county's fiscal reputation, interim Chief Administrative Officer Harry Hufford will fly to New York City next week with two county supervisors, the auditor and the treasurer to outline tough new budget controls. Hufford has proposed $12 million to $15 million in cuts as supervisors get ready to tackle next year's budget and has dealt sternly with department heads who are resisting his efforts.

"We need to send the message we're putting our house together; we're dealing with the structural deficit," he said. "It's important to show them we're addressing our financial concerns, even for our short-term borrowing and especially with the long-term."

On Tuesday, Hufford fired off a curt memo to Health Care Agency Director Pierre Durand, who has rebuffed Hufford's request to outline ways to cut nearly $3.7 million in health and mental health programs next year. Durand suggested that reductions could instead come through greater efficiencies in countywide administrative costs, a response that Hufford called "entirely unresponsive" and unacceptable.

"Please direct your attention to your agency and let the Board of Supervisors and me address countywide issues," Hufford wrote. "If you are unable to do this, please advise."

Hufford said that since his hiring in January, he's been focused on reining in spending. The pressure to do so increased earlier this month when Moody's bumped the county's long-term rating down a notch, from an A1 to an A2, noting the county's years-long trend of spending more than takes in.

A federal probe into improper Medicare billing and a botched merger of mental health and social services has cost the county more than $25 million to date, fueling the spending trend at a time when other California counties are building surpluses.

The move by Moody's affects only future bonds secured by the county's general fund, not the county's pension or short-term bonds.

But the county will be seeking long-term financing in the near future. Next year, it probably will issue roughly $15 million in bonds to help pay the local share of the $65-million juvenile justice facility to be built in El Rio by 2003.

"Hopefully, we'll have improved the [credit rating] by then," said the county's assistant auditor, Christine Cohen.

Because interest rates are affected by shifting global market forces, Khrimian said he couldn't predict what sort of rate the county would be likely to lock in when it's ready to go forward with financing of the juvenile complex.

Moody's reviews the county's finances at least once a year, Khrimian said. Given the county's relatively low reliance on bonds--it has only about $30 million in outstanding debt in the category affected by the credit rating--the dip shouldn't have a big impact, he said.

Even so, he said, it's a red flag that the county should not ignore. Right now, the county has a budget "that doesn't seem to be in sync with what's going on in California," he said. "I rate a lot of large counties in California, and it's surplus after surplus after surplus," while Ventura County is going in the other direction, he said.

Of the state's metropolitan counties rated by Moody's, Santa Clara and Marin have the highest ratings, AA3, for long-term borrowing. Contra Costa, San Diego and San Francisco counties hold A1 ratings, the next level. Ventura now shares the A2 rating with Alameda, Orange and Sacramento counties. Los Angeles, Riverside and San Bernardino counties are rated A3.

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