LOS ANGELES, Jan 30 (Reuters) - California’s Kern County was put on notice for a possible downgrade on Friday by ratings agency Moody’s Investor Service, three days after the county declared a fiscal emergency.
On Tuesday, Kern County in California’s Central Valley declared a fiscal emergency, citing plunging oil prices and growing pension debt as the main reasons for a projected $27 million general fund deficit in fiscal year 2015/16.
Moody’s reacted on Friday evening, placing Kern County’s credit rating under review for possible downgrade. The ratings agency said the review affected approximately $86 million in debt, related to the county’s Series 2009A certificates of participation.
Kern County, with a population of about 900,000, lies in the heart of California’s oil and gas producing region, and produces more oil than any other of the state’s counties.
A roughly 50 percent drop in crude prices since July has cut projected oil-related property tax revenues by $61 million for fiscal year 2015/16, Kern officials said on Tuesday. They also said growing unfunded pension liabilities were increasing strains on the county budget.
“Fiscal 2016 could see a material weakening of its balance sheet, to a level inconsistent with the A1 rating,” Moody’s said in its report.
“In addition to Kern County economy’s concentration in the oil industry, the county’s credit quality is challenged by an above average, unfunded pension obligation and a below average socioeconomic profile,” Moody’s said.
By declaring a fiscal emergency, Kern officials have the legal authority to tap into a $40 million reserve fund to shore up the county budget. It also gives them greater ability to cut staffing levels and benefits in the fire department.
Reporting by Tim Reid; Editing by Diane Craft