Thursday, March 5, 2015

Navazio: Downgrade of bond ratings unrelated to water project financing

From page A1 | January 22, 2013 |

A Moody’s Investors Service report outlining its decision to downgrade two of Woodland’s lease revenue bonds has brought up questions locally about the fiscal reliability of Davis’ partner in the Woodland-Davis Clean Water Agency project.

The report, released Jan. 10, states that Woodland’s 2002 lease revenue bonds, issued for the expansion of the city’s wastewater treatment plant, were dropped from an A1 rating to an A2, while its 2005 lease revenue bonds secured for construction of a senior center and fire station fell from to A2 to A3.

Together, the rating affects about $36.9 million in debt.

Moody’s, a bond credit rating service based in New York City, dropped the ratings in order to reflect Woodland’s “continued external support of debt service payments from the Sewer Development Fund and Sewer Enterprise Fund” and to reflect “the diminished external support of debt service payments from fire and park facilities fees, resulting in a moderately elevated general fund lease burden.”

But according to Woodland City Manager Paul Navazio, the former interim city manager and finance director for the city of Davis, the report has no bearing on the surface water project and the city of Woodland’s ability to finance it.

The ratings affect only those particular Woodland general fund items, which are both paid for through development fees.

“It would be unfortunate (and a misrepresentation of the facts) if this report were used to argue against the water project partnership with Woodland,” Navazio said in an email to The Enterprise.

“From the perspective of the city’s overall financial position and in the eyes of the credit rating agencies, the downgrade of the 2002 and 2005 lease revenue bonds are entirely unrelated to our creditworthiness in relation to issuing and servicing debt in support of the water project.”

Navazio said the ratings do not affect Woodland’s water utility rate-backed credit rating, which sits at AA-minus, or of “high investment grade.”

“Significantly, Woodland took action last year to secure water utility rates needed to support the surface water projects,” Navazio added. “Our ability to service the anticipated debt on the water project remains very strong and is completely independent of any credit rating action on these two bond issues.

“As a result, Woodland remains on solid footing for the water project — either in partnership with Davis, or on our own if necessary.”

Mark Northcross, the city of Davis’ financial adviser, concurred Monday with Navazio, explaining that the bond ratings are unrelated to the water project.

“It doesn’t mean anything,” Northcross said. “Woodland’s water fund, in the opinion of Moody’s, appears to be just fine (and) from Davis’ perspective, that’s what we need to be focused on.”

Further, Dennis Diemer, general manager of the Woodland-Davis Clean Water Agency, explained last week that each city would arrange its own financing for the surface water project, the two cities’ credit ratings would have no bearing on the other.

“Both cities will receive or establish an independent credit rating through Moody’s, Standard & Poor, etc,” Diemer said in an email. “The credit ratings will then be considered by investors in determining the interest rate they are willing to pay on the bonds issued by each city.”

Michael Harrington, a representative of the No on Measure I committee, however, believes the recent Moody’s report illustrates potential problems with linking with Woodland to pursue the surface water project jointly.

“I don’t think that you can intellectually and honestly separate the general economic malaise of a local jurisdiction from the risks associated with bonds purchased with finance (through) dedicated income streams from water and sewer funds,” Harrington said.

“The ratepayers are the same ones that are participating in local economic activities and if an organization like Moody’s says that these local economic activities are doing poorly, you can’t tell me that doesn’t affect what the ratepayers are doing with their ability to pay for basic city services.”

The Woodland-Davis Clean Water Agency project, which would cost Davis an estimated $113 million and Woodland an estimated $132 million, will pump water from the Sacramento River, treat it and pipe it to the two cities.

Construction of the project that largely will replace each city’s supply of ground well drinking water will begin later this year. Davis will participate only if Measure I passes in March.

Ballots for the all-mail election on the water project will be sent to all registered voters in Davis the week of Feb. 4. Completed ballots are due back to the Yolo County Elections Office by March 5.

Arguments and rebuttals for and against Measure I can be found under the elections page of the city clerk’s section of the city’s website, They also were published on the Jan. 13 op-ed page in The Davis Enterprise.

For more information from the Yes on Measure I campaign, visit For No on Measure I information from Citizens for Clean, Reliable, Affordable Water, visit

— Reach Tom Sakash at [email protected] or 530-747-8057. Follow him on Twitter @TomSakash. Follow all Davis water news using #daviswater



Tom Sakash

Tom Sakash covers the city beat for The Davis Enterprise. Reach him at [email protected], (530) 747-8057 or @TomSakash.
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