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Moody’s Investors Service Targets Los Gatos For Possible Downgrade

Town's debt rating is said to be one of the highest in the state.

Moody's Investors Service has targeted Los Gatos and six other towns in the Bay Area for review of its bonds, the company announced in a statement.

The six municipalities in the Bay Area, along with Los Gatos, are Berkeley, Danville, Martinez, Oakland, Petaluma and San Leandro. They are all among 30 California cities that Moody's intends to scrutinize.

The company's scrutiny comes at time when several towns have declared bankruptcies such as Stockton, San Bernardino and Mammoth Lakes.

“Moody's review of dozens of cities across California is understandable given the state's repeated fiscal attacks on local government, including the unprecedented destruction of redevelopment that will take nearly $15 million from Los Gatos this year alone, said Los Gatos Town Manager Greg Larson in response to the news.

"Fortunately, our fundamentals remain strong, with property tax revenues again starting to grow as the economy recovers," Larson added.

Los Gatos has also added to its fiscal budget reserves every year during the Great Recession and has already implemented a two-tier pension system with lower benefits, he said. 

The town has also not issued any general obligation or pension bonds, and Los Gatos' redevelopment debt rating is among the highest in the state, Larson noted.

If Los Gatos' ratings are downgraded, it will become harder for the municipality to borrow for future infrastructure projects, the credit rating agency said.

Correction: This article has been changed. An earlier version mistated Los Gatos redevelopment debt, when it meant to say that its debt rating, like a credit rating, is one of the highest in the state, which is a good thing. Everyone makes mistakes, even us. If you see anything else that is amiss, please email Editor Sheila Sanchez at sheila.sanchez@patch.com.

Peter S. Carter October 11, 2012 at 12:29 AM
Another good reason to promptly approve the Netflix expansion...we need the money. In addition to a healthy boost to our town's general fund, the expansion will bring a million dollars a year to our schools. Peter S. Carter
Larry Arzie October 11, 2012 at 12:37 AM
We were all complaisant in allowing this to happen. We laid back and let it happen. We believed in our city manager form of government and believed that if we hired experts to run the town that all will be OK. We have only ourselves to blame believing the heady days of climbing to the stars would never end. The Town Council may have been an unwitting partner in their trust that our town managers are unbiased and would keep us out of trouble but in the last 10 years the council has not had stellar advice. Hopefully come January a new council majority could be looking to fixing that too.
Larry Arzie October 11, 2012 at 01:14 AM
The million dollar a year tax estimate you speak of is based on increased property values after the project is built. Any development built in accordance with State and Town regulations would provide the same revenue. We should not be held hostage to a Tech company that wants 5, 6 or 7 story structures who have not even committed themselves by signing a lease yet. Bad planning, speculation and management will only downgrade our community more .
Greg Larson October 11, 2012 at 05:02 PM
To clarify this complex issue: The Town has and will likely retain the highest credit and debt ratings for any small city in California. We have added to our reserves every year during the Great Recession, implemented pay cuts, and adopted two-tier pension reform. This has only been possible through the hard work and dedication of Town staff under the direction of the Town Council. Moody's informed us yesterday this review is caused by their internal policy change affecting redevelopment backed debt for dozens of cities across California, including similarly highly rated cities like Sunnyvale and Santa Clara.
Larry Arzie October 11, 2012 at 09:08 PM
Greg, nice to see you putting yourself out before the community. What took you so long? Something in the wind perhaps?

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