Panel Asked to Study Credit Costs of Breakup

The City Council on Friday asked the commission studying San Fernando Valley secession to determine whether a breakup would lower Los Angeles’ bond rating and drive up its debt costs.

The council voted unanimously to request that the Local Agency Formation Commission respond to concerns raised by a bond-rating firm about the effect of secession on Los Angeles’ credit standing.

Fitch Ratings issued a report Thursday that warned investors of a possible downgrading in Los Angeles’ bond rating if the Valley breaks off.

“LAFCO said they talked to bond-rating agencies and they said there would be no effect,” said Councilwoman Cindy Miscikowski. “This refutes that analysis.”

LAFCO Executive Director Larry Calemine said he will conduct any further analysis the commission requests but that the proposed terms of a Valley secession ensure that it would not weaken Los Angeles’ ability to pay its bond debt.

The commission is set to decide Wednesday whether to place Valley secession on the November ballot. It is also reviewing secession plans for the harbor area and Hollywood.

City Administrative Officer William Fujioka said Fitch Ratings has indicated that a Valley city’s credit standing would be uncertain, at least at first. That’s because it is unknown what sort of policies such a city would adopt, he said.

But Valley VOTE’s bond advisors have concluded that a Valley city’s assets would allow it to borrow money if necessary, said Jeff Brain, president of the pro-secession group. Brain said two other bond-rating companies have not offered negative forecasts related to secession.

Another secession leader, Richard Close, questioned the objectivity of the Fitch report, noting that Los Angeles has paid the firm in the past to evaluate bonds. But Hahn said the city neither requested nor paid for Fitch’s forecast on secession.

In addition, Hahn said LAFCO has no legal authority to set aside bond debt to make the harbor cityhood plan work.

Calemine is studying whether relieving a harbor city of its estimated share of Los Angeles’ bond debt would make the proposed municipality financially viable. LAFCO says it has the discretion to excuse such liabilities.