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When I first moved back to San Diego at the beginning of 2005 and voiceofsandiego.org went live, the one issue everyone told me that I had to keep my eye on is when the city was going to get its audits finished and its credit rating back.
Well, here we are, more than three years later, and we’re still waiting for the city to regain its credit rating.
But, today, for the first time in our existence, we can report definitive positive movement in the city’s return to Wall Street and its sought-after financing.
Fitch Ratings, one of the three credit rating firms, today upgraded the city’s rating watch from “negative” to “positive.” The designation comes on the heels of the release of the long-delayed audits for fiscal years 2003, 2004, 2005 and 2006. The 2006 audit was just completed over the weekend.
Amy Doppelt, a managing partner who handles San Diego’s ratings, said the city will likely need to show progress on its 2007 financial statements before it can return to Wall Street, where it will be able to borrow money for vital infrastructure at less expensive rates than it has been on the private market since its credit rating was suspended in fall 2004.
“It is certainly a big step forward but not enough to get them into the market yet,” Doppelt said.
The swap in the ratings watch means that Fitch will likely move the city’s credit rating up in the next six months to a year.
When the city’s financial crisis exploded in 2004, aggravated by a swelling pension deficit and the release of misleading financial information to investors, San Diego was one of a handful of municipalities with the pristine AAA credit rating. It has since been downgraded to BBB+, the kind of credit rating that would be typically reserved for a medium sized city with a struggling economy.
Doppelt said the negative ratings watch had stemmed from the city’s inability to produce audited financial statements, documents that could’ve vouched for the city’s financial health.
The announcement released by Fitch this afternoon also tossed in two caveats that could change its outlook. One is the city’s economy, especially the “deterioration in the residential property sector.” It also expressed worries about how the city appears unable to meet its contractual obligation to one of its labor unions to pump $600 million into the pension system.
Failing to live up to that promise could force the city to relinquish the gains of 2005 labor contracts.
Doppelt credited the completions of the investigations into City Hall and the reforms that were instituted in the wake of the scandal for helping improve the city’s standing.