San Diego Business Journal

San Diego Bond Issues Get A+ Rating From Fitch

By Mike Allen Monday, June 4, 2012

Fitch Ratings, one of three major credit rating firms, assigned an A+ rating to three separate bond issues the city of San Diego is planning to do in June, the firm said May 29.

The three issues total $230 million and include $141 million refunding of bonds for the first expansion of the San Diego Convention Center; $71 million refunding of various capital improvement projects; and $18 million for fire department improvements.

In assigning the A+ rating, Fitch also affirmed the city’s general obligation rating of AA-, which is one step above A+.

The top rating of AAA is accorded to U.S. Treasury bonds, so A+ is four steps below that.

In its report, Fitch gave mostly high marks to the city’s solid financial health, noting a projected 2012 budget surplus of $17.8 million.

However, the city could face a bond rating downgrade if the city has to tap into its general fund to pay for things that were previously paid from redevelopment money it won’t be receiving any longer. Fitch also cited possible problems if city voters approve a ban on project labor agreements that is on the June 5 ballot under Proposition A. That ban could affect the receipt of state funds, putting more pressure on the general fund, Fitch said.

Fitch called San Diego’s overall debt burden “moderate.”

According to Fitch, the city’s total debt outstanding is just above $5 billion, or $3,894 for each of its 1.3 million residents.

Fitch noted that the city is considering being the conduit for $520 million in planned bonds for another expansion of the convention center. But the city is responsible for only a small portion of that debt payment, Fitch said.

The plan calls for the formation of an assessment district, which would issue the bonds, and an increased hotel room tax of 1 to 3 percent, depending on the hotel’s proximity to the center. That increase would generate an estimated $36 million annually to cover the bulk of the debt service.