Rating Firm Puts County on Credit Watch

A top New York bond-rating firm has put Ventura County on a credit watch because of its $20-million operating budget deficit, a move that threatens the county’s future ability to borrow money at the lowest rates.

Standard & Poor’s Corp. went ahead and gave the county its top A1 rating for short-term loans, but notified officials this week that it will be watching closely to see how the county deals with its budget problems.

Supervisor Frank Schillo said this is the first time the county has received such a notice. He said it puts more pressure on the board to erase the shortfall in the county’s $846-million operating budget and not delay deep cuts until the next fiscal year.

“I take it extremely seriously,” Schillo said. “Any letup on our part to bring this budget back in line and do what is fiscally responsible will affect future ratings for this county, and I know we don’t want to do that.”

Supervisor John K. Flynn said he believes the rating agency took the action because it was sued earlier this month by Orange County, which blamed Standard & Poor’s for not warning about the bad investment practices that led to its bankruptcy filing two years ago.

“There may be more sensitivity because of that,” Flynn said.

County Auditor-Controller Thomas O. Mahon said an official with the Wall Street firm told him Wednesday that the county had been placed on a credit watch.

“We have this imbalance in our budget and that caused them some concern,” Mahon said. “They are waiting to see how we handle it.”

The auditor said the agency’s action would not have any immediate effect on the county’s borrowing, including the $85 million in one-year security notes that were sold Wednesday to help meet county operating expenses. The notes are routinely sold every year at this time to help sustain the county until it collects property taxes in December.

Mahon said the big concern would be for long-term borrowing for major public projects, of which the county has none planned at this time. He said the rating agency would want assurances that the county has taken care of its operating deficit and will have no problems paying its debts.

“Basically, what they are looking at is the ability to repay,” he said. “You’ve got to have a sound [financial] plan where somebody can look at it and say, ‘Yes, that’s doable.’ ”

Even though the county may be under more scrutiny, Mahon stressed that it has a stellar reputation in the financial community and that this works in its favor.

“We have a very good standing in the market,” he said. “Ventura County paper has a great reputation.”

Mahon agreed with Flynn that Orange County’s lawsuit against Standard & Poor’s may have played a part in its action. He said the agency had placed other California counties on notice as well.

“It’s logical to me that when you get sued, you tend to get more cautious,” Mahon said. “If I’m sued for big bucks, then I’m going to be a little more careful. You start saying, ‘Are you sure you did this right? Are you sure you did that right?’ ”

Schillo announced the rating agency’s action on the opening day of a weeklong series of budget study sessions that the board has planned in preparation for final hearings later this month.

In light of the credit watch, Schillo told the board that it was more important than ever to take care of its financial responsibilities.

“This is very serious business,” Schillo said. “We have a [commitment] to the public to balance the budget and not have deficit spending.”