By Joshua H. Silavent - Staff Writer

October 23, 2012 – Moody’s Investors Service is reviewing four lease-backed or general obligation bonds in Long Beach for potential ratings downgrades as part of a larger analysis involving 32 California cities.

According to a Moody’s press release, “The reviews and downgrades reflect a combination of fundamental economic pressures in the state, the different way in which various revenue sources have been affected and the factors that influence a city’s ability and willingness to pay the obligations backed by these revenue sources. Most affect securities that are paid from a citys general funds and do not benefit from a specific pledged revenue source.”

In addition to the bonds under review, Long Beach’s overall issuer rating, which currently stands at a respectable Aa2, is also subject to a possible downgrade.

“California cities operate under more rigid revenue raising constraints than cities in many other parts of the country,” Moody’s Senior Vice President Eric Hoffmann, who heads the agency’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.”

Long Beach City Finance Director John Gross told the Business Journal that Moody’s review is a reflection on California more than it is on Long Beach.

“The key thing from my perspective is that this is a generic review,” he said, adding that Moody’s concerns are related to the state’s general economic climate, tax restrictions and obligations, and potential for bankruptcy, as seen in cities like San Bernardino, Mammoth Lakes and Stockton. “It has nothing to do with the underlying strength of the city. It has to do with the way we structured the individual bond issues.”

Gross said he expects a call from Moody’s in the next month or so. The rating agency will then conduct a review of Long Beach finances and make a determination within an unspecified timeframe. Gross said he could not predict whether Moody’s would apply downgrades to the city’s bonds and overall rating, but he asserted that Long Beach remains in a strong financial position. “There are no problems with any of these bond issues,” he said.

If the city’s overall rating is lowered, Gross said impacts would be speculative.

“It would mean nothing immediately because all these bonds are issued,” he added. “It wouldn’t change our costs. What it would potentially do is increase our costs to borrow in the future.”

Gross said he called Moody’s when the review was publicized and was informed that the rating agency was looking into the fact that the city’s financial reports did not reflect a $100 million loan, owed by the now-defunct redevelopment agency (RDA), that was previously on the books as a general fund receivable.

As a result of the state's elimination of the RDA, the loan was removed from the city’s books, causing the reported total fund balance to drop dramatically, though it had no impact on cash, or the city's emergency or operating reserves, Gross said. He added that the city expects to put the loan back on its books soon.

Meanwhile, Gross remains confident that the city is on solid ground with its bond obligations. “We generally think that Long Beach as a city is going to look good,” he said. “The only other question is how bad do they think California is?”