Pacifica's Credit Rating Downgraded

Standard & Poor's downgraded the city of Pacifica’s credit rating from A to A- last week, for the first time since it was upgraded from A- to A in 2006. S&P cited a structural imbalance of revenue and expenditures in the budget as the main reason for the action.

In addition to maintaining an imbalance, the city has decreased its general fund for five of the past six years. In 2008, Pacifica had $7.1 million available in reserves, or 28 percent of its expenditures. For fiscal year 2012, that number had dropped to $292,000, or 1.2 percent of its expenditures.

City Council presented a balanced preliminary budget on Monday for the next fiscal year, but if the city does not maintain balanced operations throughout the year, there is a chance the credit rating will be decreased again in 2013.

Currently, S&P gives Pacifica’s credit a “negative” outlook, due in part to the city’s history of structural imbalance in recent years.

“Things can happen throughout the year,” said Bryan Moore, the current credit analyst for Pacifica. The outlook could change to “stable” if the city does in fact maintain a balanced budget in the coming fiscal year.

According to S&P’s report, the only year of positive general fund results since 2006 was in 2009, “due to the receipt of one-time funds: $3.35 million recovered from favorable lawsuit appeals, about $800,000 from land-sale proceeds, and $700,000 that the sewer fund repaid to the general fund.”

The report said city management stated that "they have left several positions vacant, established a freeze on salaries, capped benefits, and have transferred a portion of the payments for CalPers to the employee from the city," in working toward a balanced budget.

The rating downgrade reflects S&P’s view of Pacifica’s:

• Structural imbalance resulting in general fund drawdowns in five of the past six fiscal years;

• Only adequate assigned and unassigned general fund balances in 2011, with additional projected declines in fiscal 2012; and

• A Financial Management Assessment (FMA) score of "standard".

Factors that partly offset the above weaknesses, according to S&P, are the city’s:

• Primarily residential community that participates in the broad San Francisco Bay Area economy;

• Very high income and property wealth levels; and

• Moderate debt burden.

Follow us on Twitter | Like us on Facebook |Sign up for our daily newsletter | Blog for us