Even though California’s credit rating ranks lower than any
other state in the nation except Louisiana *
– which shares the same rating and was battered by the most
expensive hurricane in U.S. history in 2005 – local school and city
officials are confident that nearly $200 million in recently
approved bond notes will sell.
Even though California’s credit rating ranks lower than any other state in the nation except Louisiana *– which shares the same rating and was battered by the most expensive hurricane in U.S. history in 2005 – local school and city officials are confident that nearly $200 million in recently approved bond notes will sell.
“We will be able to sell them with no problem,” said Enrique Palacios, deputy superintendent of business services for the Gilroy Unified School District. Voters approved $150 million in bonds last November to build new facilities and improve existing buildings. “Municipal bonds are considered safe havens for investors because they’re guaranteed returns.”
The school district plans to sell $50 million worth of notes by the end of February, Palacios said. When the district receives its credit rating in a few weeks, Palacios expects a top notch score, he said.
“I expect to get one of the highest ratings again,” he said. “It’s important for people to know that.”
At City Hall, Finance Director Christina Turner also has no reason to believe the city wouldn’t get a favorable rating, she said.
Backed by property taxes, the $150 million school facilities bond that will fund Christopher High School and other district improvements and the $37 million public library bond have a stable and guaranteed revenue stream, Turner explained, unlike riskier financial tools that are backed by an agency’s general fund, developer fees or sales tax.
Though no official date has been set for selling the city’s bonds, Turner predicted that they would be sold in stages, with the first series issued by the end of the year.
“I have no doubt that we’ll be able to sell,” she said.
The state of California is having difficult times selling bonds because lawmakers have not been able to determine how they are going to address the $42 billion budget shortfall, Palacios said. The shortfall creates a low credit rating, deterring private investors from risking their money on shaky investments. The state may have to suspend billions of dollars in public works programs for lack of bond sales.
Agencies are rated on how well they handle their finances – whether they’re balancing their budgets, taking care of the reductions the state has handed down and meeting their financial obligations – Palacios said.
Last year, the school district reduced its budget by $4.5 million and increased its reserves in anticipation for this year’s mid-year budget cuts. The district is looking at about $18 million in budget cuts over the next three years, under the current budget proposals.
On a positive note, the district is increasing its enrollment and improving academically, Palacios said, other indications of the district’s financial health.
Gilroy taxpayers won’t see increased property taxes until December for the library bond and 2011 for the school bond.
