LOS ANGELES - Some special districts in California face possible credit deterioration because of a budget provision requiring them to relinquish some of their property tax revenue to the state, Moody's Investors Service said in a report scheduled for release today.

Districts that rely most on property taxes raise the most concern and will draw high priority for analysis from Moody's, the report says.

Moody's is issuing the report in response to a recent state budget-balancing provision that transfers $375 million in property taxes to California from the local districts, which provide a vast array of services ranging from sanitation to mosquito abatement. The transferred money is diverted to schools, thereby offsetting the state's funding responsibility for education.

But Moody's also stressed that it will not take immediate action on debt ratings because "there still remains much uncertainty about how the special districts will actually be affected. "

According to Moody's. the transfer legislation is vague and raises issues that need addressing.

"They didn't really cover all the contingencies that are out there," Eric Friedland, the analyst who prepared the report, said in an interview yesterday.

For example, Friedland noted, the legislation seems designed to protect existing debt service from impairment by the revenue transfer.

But Friedland said some districts are unclear whether protection only applies to general obligation debt service, or also extends to payments for certificates of participation and other debt instruments.

"There's a lot of confusion out there right now" about how to interpret the legislation, Friedland said.

Some lawyers believe the state intended to protect certificate of participation obligations under the payment calculations, he noted.

If so, there is "a lot more which has to be dealt with in follow-up legislation," Friedland said, adding that a clean-up bill is needed soon.'

The budget legislation requires the districts to transfer an amount equal to 35% of the property taxes each reported receiving in fiscal 1992. The transfer cannot exceed 10% of the total revenues reported@ in fiscal 1990.

That 10% limit, and the vaguely defined" protection of debt service, "should offer some protection to bondholders of special district debt," Moody's said.

But the report says the murkiness of the legislation raises other unanswered questions. For example, districts that operated prudently and accumulated so-called rainy-day reserves might be penalized if such funds are included in calculations for the property tax transfer, the report says.

Credit decisions will require a case-by-case analysis because special districts in California are "an eclectic group of entities." Friedland said.

Some districts can raise user fees and take other steps to adjust to the revenue loss, he said, while others have much less flexibility. And some districts escape the transfer requirement altogether, including those providing fire protection and hospital services.

In general, however, the report says "the ability of the special districts to provide adequate services, while maintaining balanced financial operations, will be challenged" by the state's transfer of local property tax revenues now and possibly in the future.

Moody's cautioned that the transfer, which applies only to fiscal 1993, could be reinstituted again.

"It is likely that the state will continue to target the special districts' property tax revenues as a source to fund future budgets. " the report notes.

The report concludes with a reminder that "there are many special districts that will not be severely affected by the current legislation." More than 5,000 special districts operate throughout California.

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