LOS ANGELES -- Standard & Poor's Corp. has place four California ports on CreditWatch with negative implications, citing concern that a provision in the new state budget could harm their financial standing.
The cautionary notice issued last week for the ports of Oakland, Long Beach, Los Angeles, and San Francisco reinforces previous warnings that California's budget solutions may take a toll on some local government credits.
Standard & Poor's expressed concern in a press release that legislation enacted as part of the state budget could force the ports to transfer part of their "discretionary reserve" to the cities where they are located.
Moody's Investors Service noted last week that the state budget also provides "some potential, short-term relief to the cities" by allowing them to collect certain port funds in fiscal 1993 and 1994.
Standard & Poor's explained that the size of the transfer is calculated as "the greater of $4 million or 25% of working capital," though it is limited to the amount of property tax revenues lost by the cities as the result of other cuts in the state budget.
"These [port] transfers may be sizable, and of equal concern is that these amounts are not specified to be subordinate to debt service," Standard & Poor's said in a statement released late Thursday.
The state legislation requires action by the prospective cities to take the port funds, and Standard & Poor's noted such transfers are likely "given the tight fiscal conditions of many local governments."
Such transfers could significantly limit the financial flexibility of the ports and hurt their ability to maintain adequate reserves for "operating uncertainties," the rating agency said.
In addition, "the loss of fund balances for pay-as-you-go financing may limit their ability to provide adequate maritime facilities or increase debt load, and in the long term impair their competitive position versus other West Coast ports."
Standard & Poor's said it will meet with port officials to determine the magnitude of the allowable transfers and to study their possible responses.
From a broader perspective, both rating agencies noted that the state legislation makes a one-time change to a long-standing policy of the Public Resources Code as it pertains to state tideland trusts. Those trusts grant control of the tidelands to the ports, subject to certain restrictions.
The tidelands policy essentially barred local governments from transferring port surpluses to their general funds, except to cover valid payment obligations such as debt service or reimbursement for services.
"This provision has historically been viewed as a positive factor in credit ratings because it allowed California ports to operate with certain autonomy," Standard & Poor's said. "With this budget, the state has demonstrated its willingness to alter that protection and, despite the two-year limit, potentially do it again."
The rating agency added that earlier versions of the port legislation were less harmful because moneys could be transferred only after taking into account operating expenses, debt service, and certain capital improvements.
Most port bond issues are affected by the CreditWatch action, except for certain insured bonds such as ones from the Port of Oakland. The Port of San Diego is included in the legislation but is not rated by Standard & Poor's.
The agency's current ratings for the port bonds are: Oakland, AA-minus; Long Beach, AA; Los Angeles, AA; and San Francisco , A-minus.
The rating agencies plan to scrutinize other local credits in coming weeks and to examine closely the new state budget that closed a $10.7 billion gap. Some state officials predict California could face more financial problems later in fiscal 1993 if the economy remains stagnant.
