County to Defend Bond Rating to Wall Street Firms

Six months after Orange County filed for bankruptcy, Ventura County is about to find out what impact the financial debacle will have on its own borrowing practices.

A group of county officials will travel to New York today to meet with representatives of two major Wall Street bond-rating companies, Moody’s Investors Services and Standard & Poor’s Corp.

“Our hope is that we will be able to show that the county has consistently exercised sound financial judgment,” Auditor-Controller Thomas O. Mahon said. “We have to convince them that while other people have fallen off the bandwagon, we’re still on it.”

The immediate concern is how the county’s short-term borrowing could be affected by the loss of confidence in local government bonds, he said. Each July, the county borrows between $75 million and $85 million to carry it until it collects tax receipts in December and April.

The practice could become more expensive this year because investors and lenders will likely require some type of insurance to ensure repayment, which would mean additional costs for the county, Treasurer-Tax Collector Harold S. Pittman said.

“If in doubt, investors will require a third-party guarantee,” he said.

Orange County filed for bankruptcy Dec. 6 after suffering trading losses of $1.69 billion in its investment pool, which included assets of 180 other public agencies. Orange County voters will consider approving a half-cent sales-tax measure in a special election June 27 to help repay schools, cities and other agencies that lost money in the pool.

In preparation for their meetings with Ventura County officials this week, both Moody’s and Standard & Poor’s forwarded a list of questions to the treasurer’s office recently, asking for detailed information on investment practices.

Essentially, the rating firms wanted to know whether the county is engaged in any of the risky investment strategies that got Orange County into trouble, Pittman said.

“They wanted to know, are you dealing in derivatives? Are you leveraging? Are you doing reverse repurchase agreements?” Pittman said. “They wanted to know if you are marketing your investment pool to people outside your county.”

In Ventura County’s case, the answer in all instances is no.

“All of our investments are plain vanilla,” Pittman said. “We have not done the kind of things that have gotten other counties in trouble. We’re super-conservative. We don’t like to lose.”

Indeed, more than half of the county’s $700-million portfolio is invested in government securities, with the balance in the state treasurer’s pool, corporate notes, certificates of deposit and other low-risk investments.

About 60% of the portfolio is county money, 35% belongs to local school districts and the remainder to special districts.

Mahon, one of six local officials traveling to New York, said the county’s conservative investment approach has earned it an A-plus bond rating.

Still, Mahon said, there will probably be fewer investors in California municipal bonds this year because of the Orange County bankruptcy, which could translate into higher interest rates.

“There are some people out there who, when you say, ‘California,’ they back away,” he said. “But the sophisticated investors look through all that and evaluate counties on an individual basis.”

Meanwhile, Pittman and Mahon said it is too early to know how Orange County’s bankruptcy could affect Ventura County’s long-term borrowing.

In December, the Board of Supervisors approved issuing $51 million in bond-like certificates to build a new wing at the county hospital. But the sale has been delayed due to higher interest rates and a lawsuit filed against the hospital.

Although Mahon had said earlier that the county may issue the certificates in the fall, he said Tuesday that he is uncertain when they will be issued.

“There are so many factors involved that trying to predict a date is really risky,” he said.

Accompanying Pittman and Mahon to New York will be Supervisors Maggie Kildee and Frank Schillo, County Counsel James McBride and Lin Koester, who will assume the title of county chief administrative officer on June 19.