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Petaluma officials don't expect credit rating downgrade

Petaluma leaders Wednesday downplayed an alert that a top credit-rating agency is taking a closer look at the city's finances with an eye on risky investments.

Moody's Investors Services announced this week it is evaluating 30 California cities, including Petaluma and Santa Rosa, for potential downgrades of their credit ratings. A few, including San Francisco and Los Angeles, could have their ratings upgraded.

Petaluma officials said that Moody's apparently wants to examine one specific bond issue: $5.7 million in 2003 to fund airport improvements. About $4.8 million is still outstanding.

"I'm not overly concerned about a downgrade at this point," said Petaluma Finance Director Bill Mushallo.

In Santa Rosa, the agency is focusing on a $51 million pension-obligation bond from 2003 and a $10 million bond that financed the purchase of two downtown buildings in 2007. Both bonds are secured by Santa Rosa's general fund -- the main account from which most tax-supported city services, including salaries and benefits, are paid.

None of Petaluma's bonds are backed by the general fund and the city has no bonds that fund pensions, officials said. The airport bond is secured by revenue from airport operations: Hangar fees, leases for aircraft storage and fuel sales.

Airport revenues always have covered the bond principal payments and the debt service, Mayor David Glass said. Though recreational flying may have decreased with the economic downturn, the airport remains self-sustaining and the bond repayment fund isn't at risk, he said.

"It's a non-event. It's more perception than reality," said Glass, who worked in the municipal bond industry for 23 years.

He said the airport bonds, rated at BAA2, likely will remain at that level. If it were to be downgraded, he said it would likely be by one notch, to BAA3, which he said is an "investment grade bond" and still above junk status.

"I think it's unlikely we'll see it go down," Glass said. "What's more likely is we'll see nothing changed."


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