Rating Agency Might Lower City's Credit Score

The public employee pension crisis has bitten San Leandro on its financial butt.

Moody's Investor Services said Wednesday that San Leandro is one of 32 California cities whose credit ratings might be downgraded because of a general concern that more California municipalities will file bankruptcy -- following San Bernadino, Mammoth Lakes and Stockton.

Moody's is one of the bond-rating agencies that create the equivalent of credit scores for large borrowers like government agencies and corporations.

The rating agency said it might lower San Leandro's borrowing score one knotch from Aa3 to A1 -- toward the lower end of the prime lending range.

When its review will be done and its rating decision announced is not clear.

Current effects

In the meantime, the San Leandro debt picture is not changed said assistant finance director Carla Rodriguez.

The city has two main debt pools.

As of the end of fiscal year 2011, it had $87.6 million in debt that carried a current payment $3.9 million -- money set aside in the city budget, she said.

In fiscal 2012 San Leandro refinanced its retirement fund for police and firefighters and created a new $18.3 million pension obligation bond.

That new bond will require a $720,000 payment in 2013, Rodriguez said. The money is set aside and the refinancing got San Leandro a lower interest rate.

But that transaction is also what caught Moody's eye.

In a press release announcing the actions, the rating agency specified the pension bond as the reason that San Leandro is coming under review, and said it didn't like the financial and legal factors in California:

"These include the effects of the recent economic and property market downturns, limitations on the cities' ability to raise property taxes, rising fixed costs, and state laws and local precedents that make bankruptcy filings a potentially viable means to address these pressures . . . In the event of a default or bankruptcy, lease-backed debt, especially for an essential asset, could be more likely to be paid than pension obligations."

Three city council seats are up for election. Do you know where the candidates stand on the pension issues facing the city?