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UPDATED: Moody's Downgrades San Juan Capistrano's Credit Score

The move is directly related to the city's water woes, including financial troubles and a lawsuit.

Moody's adds to San Juan Capistrano's water woes. Patch file photo.
Moody's adds to San Juan Capistrano's water woes. Patch file photo.

EDITOR'S NOTE: Article updated to include comment from the city. Originally posted at 11:20 a.m., Dec. 5, 2013. 

Looking at the recent financial and political environment, Moody’s credit rating service downgraded Wednesday San Juan Capistrano’s ability to pay off its water-related debts by two steps, edging the city closer to being labeled a moderate credit risk.

Specifically, Moody’s is looking at the certificates of participation – basically a loan – the city issued to help build the water system. Installment payments come from water bill proceeds.

The credit rating has dropped from A1 to A3, a tier that means upper-medium grade and low credit risk. A3 is the bottom of that tier just above a moderate credit rating, and there are two other tiers, AA and AAA, that are considered better.

In a brief report issued Wednesday, Moody’s took note not only of volatile and below-average debt service coverage levels but also a recent lawsuit that successfully challenged the way the city issues bills for water (the city is appealing) and “pressure from some local taxpayers over water rates.”

Other reasons include:

  • “Severe depletion of water system unrestricted reserves that management expects to remain weak for several years”
  • “Higher-than-expected operational costs related to the system's ground water production”
  • “The water system's diminished ability to respond to future needs for large rate increases due to large prior year rate increases”

"Moody’s announcement does not come as a surprise to the city, since no action was taken by Moody’s in 2011," said spokeswoman Catherine Salcedo. In 2011, two credit-scoring agencies, Fitch and Standards & Poors, downgraded San Juan Capistrano after officials revealed the water department was millions in debt.

Still, city officials have reason for optimism, Salcedo said. 

"The city has made significant progress since 2010," she said. "The city’s strengths listed in Moody’s report noted the relatively large size of the water system and the system’s access to significant level of local groundwater. 

"Also noted is the city’s increased and consistent production from the groundwater recovery plant along with effective management of operations, which reflect the system’s ability to maintain stability in operating costs over several recent years," Salcedo added.

The city is taking a new look at its water rates and has scheduled a forum next week to answer community questions and gather input about the upcoming water and sewer rate study. It’s scheduled for 5:30-7:30 p.m. Tuesday at the San Juan Capistrano Community Center. Also, information stations will be set up to discuss how water is delivered, the current water supply, the role the groundwater recovery plant plays and the upcoming water rate study.

Just last month, City Attorney Hans Van Ligten warned councilmen that rhetoric on water controversies could impact the city’s credit rating. He was responding to a request by Mayor Sam Allevato to have staff study the impacts of closing down the groundwater recovery plant. Allevato, a staunch supporter of the plant, wanted the report to quiet the critics.

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Donna Fleming December 05, 2013 at 04:03 PM
Angus, maybe our community outcry has been noticed. Can anyone doubt Allevato is running our city poorly? Allevato was advised by legal council a couple of weeks ago that this could happen. Instead of addressing the issues, he became Mayor. Do you think this rating by Moody's is going to make property in SJC more desirable to buyers? Are we headed for a Detroit type city? The money has been mismanaged and spent on stupid land deals. We cannot afford Sam Allevato.
Angus Kevin Mckay December 05, 2013 at 04:29 PM
Other reasons include: •“Severe depletion of water system unrestricted reserves that management expects to remain weak for several years”---- Does this contradict exactly what Ms. Salcedo said? "The city’s strengths listed in Moody’s report noted the relatively large size of the water system and the system’s access to significant level of local groundwater. But on a Plus side, Salcedo did point out that the underperforming, overpriced GWRP is being managed well and that is definitely a plus. I wanted to respond to some others here as well, many have stated that Dana Point`s water supply is actually lower than ours. I have friends that live in Dana Point and they actually pay San Juan Capistrano for their water. maybe not everyone in Dana Point does, but i know they do, leading me to Assumptions again , Jonathan, that they may also pay San Juan for their water. how weird a neighboring city pays different water rates than the city that it pays for water, did you get all that?
rachel o December 05, 2013 at 04:40 PM
My personal favorite was. " The water system's diminished ability to respond to future needs for large rate increases due to large prior year rate increases”. Meaning the water rates are so high now, they can't go any higher.
Gus Gunderson December 05, 2013 at 04:44 PM
I am with the others. Sam has done enough damage to our town. Just step aside Sam.
Donna Fleming December 05, 2013 at 05:38 PM
Sam please resign. Do the right thing. We need new management in our city.
Penny Arévalo (Editor) December 05, 2013 at 06:35 PM
I printed the entire city press release here: http://sanjuancapistrano.patch.com/groups/politics-and-elections/p/press-release-from-the-city-regarding-moodys-downgrade
Sunshine December 05, 2013 at 06:39 PM
Sam, RESIGN and at least save us the $95,000 cost of a recall although that's peanuts compared to the debt you have plummeted us in over the last 10 years of your reign as the puppet for the rich Rancho Mission Viejo Development developers. Perhaps these developers who got richer picking the pockets of SJC residents could loan us some money. Right.
Sunshine December 05, 2013 at 08:11 PM
That meeting on Tuesday is undoubtedly going to be a farce. I can't go because of Christmas commitments. But I'm sure this will be a well orchestrated propaganda driven cheerleading effort to spin spin spin by the 3 Outlaws on the City Council to cover their butts.
Sunshine December 05, 2013 at 08:11 PM
Save SJC!! Resign, Sam!
Donna Fleming December 05, 2013 at 08:43 PM
I may go. It should be a circus. I love the circus. Especially the clowns and high wire acts. We should see both. And, some pretty good tap dancing. Hopefully Sam Avacado will be there passing out refreshment. Cups of water. Get there early or it will be gone. Word has it there is not enough to go around.
Christie December 06, 2013 at 12:15 AM
This is very disappointing, though not surprising, news. Bad stewardship is bad for all of us (residents and business owners alike) here in San Juan. I do not see Mayor Sam Allevato resigning anytime soon. I encourage residents to sign the recall petition so we can have a chance to stop this downward spiral.
shelly December 06, 2013 at 10:57 AM
Angus, Read the actual Moody's report to get the whole story. I find it sad that people actually celebrate because they do not like one guy one the city council.
Donna Fleming December 06, 2013 at 11:45 AM
Shell .. STOP giving people assignments. You are not our teacher. You have the most irritating tone. When a city goes bankrupt you blame the leader not the citizens. The old saying "the buck stops here", means Sam Allevato was at the helm for 9 years. So, this is on his shoulders. He is to blame. Now our property values drop.
Sunshine December 06, 2013 at 12:31 PM
Sam Allevato is responsible. He has been leading the pack as a SJC councilman puppet to the rich RMV developers for 9 years. His votes over those years have got us where we are. With the council split, his vote was a deciding vote. He has been the corrupt watchman who, during those nine years, knew what he was doing. He wasn't working for the residents' benefit; he was leading on the behalf of Tony Moiso, Brad Gates, Robert Ferguson, and whoever else is part of that group of outlaws. That's for sure.
shelly December 06, 2013 at 06:25 PM
Donna Fleming, Angus stated, "Does this contradict exactly what Ms. Salcedo said? " I encouraged him to actually read the actual Moody's report because this part of the report was not included in Penny Arevalo's article but contained within theMoody's report which Penny posted a link to above. I am sorry that you feel the need to insult me and to try and control how I respond to others. There is such thing as freedom of speech, correct? Isn't that what another comment board was about. Donna, How do you think SJC should pay the bonds? Specifically. And if you say the "city" should pay it. Well, we are the city.
shelly December 06, 2013 at 06:30 PM
How should SJC pay its bonds?
shelly December 06, 2013 at 06:41 PM
Donna Fleming, The citizens of SJC put Sam Allevato at the helm. He was voted in by the people of Sam Allevato.
Sunshine December 06, 2013 at 07:15 PM
Shelly, you said: "The citizens of SJC put Sam Allevato at the helm. He was voted in by the people of Sam Allevato." He won by a couple hundred votes. OMGosh. That doesn't mean that you can't recall an elected servant when you find out he's corrupt and acting like a little dictator. We have the right to try and recall Sam. It will cost each household, not even each person, only a one time $5.00. One month of LEGAL lowered water bills will immediately save this and so much more.
Sunshine December 06, 2013 at 07:16 PM
Shelly, you tell me how we pay the bonds. What did they buy? Did we get anything from them?
Sunshine December 06, 2013 at 07:20 PM
Shelly, why are those bonds such an issue? What is the ugly history behind them?
shelly December 06, 2013 at 07:55 PM
I guess we need to raise taxes or charge penalties to those who use way over their allotted amount of water. Either way they need to be paid. How would you do it? Even if it was only a few hundred he won twice. Right?
shelly December 06, 2013 at 07:56 PM
And he can be recalled and we will pay for it if it goes to the ballot.
shelly December 06, 2013 at 07:59 PM
Have a lovely, positive evening. The Christmas Tree lighting is tomorrow SJC. Have a wonderful time in spite of the crazy politics of SJC.
Gus Gunderson December 06, 2013 at 08:22 PM
For Pete's sake, the duffs Sam Allevato has been on the City council for nine years. No one else on the city council has the responsibility for the city's financial failure as Sam Allevato. It is almost criminal. Do the residents a favor Sam and resign.
Sunshine December 06, 2013 at 08:55 PM
Gus, you're right. Even though the recall will only cost each household a ONE TIME cost of $5.00, which they'll recover after ONE reduced water bill, Sam absolutely should resign. We are on our way to bankruptcy. Over the last 10 years, Sam has been spending our money like a drunken sailor. (My husband was a Commander in the Navy and he hates when I say that!)
CHK December 07, 2013 at 03:02 AM
Maybe I need to move back to NJ where I had my own artesian well water for free!
Donna Fleming December 07, 2013 at 04:39 AM
I had free groundwater in Newcastle too. I lived there before moving to San Juan. You turn a valve and you have ground water. The rest of the house was on a well. We maintained it and there was no water bill for a 5 acre parcel with home. When I moved to SJC in 1999, the water bill for a family of 5 was about 50.00 a month. No other utility has escalated like the water bill. Funny thing is the average home bill in Long Beach is 50.00 a month today. Having your own well certainly has its advantages.
Donna Fleming December 07, 2013 at 04:52 AM
Shelly..... If you buy a widget.....you expect to receive a widget. If you pay monthly for the widget, and you are told you will have the widget when they are back in stock but you must keep paying for the widget. Now, you have been paying for this widget for 2 years. ,,,,you would probably cancel your order and ask for a refund. No product has been produced, so I want a refund. The fact that the city has co-mingled the gw bond fees in with the city fund is incredibly poor accounting and management. People have lost their homes yet, they had to pay very high water bills while they held onto their homes. They too deserve their portion of the refund. The residents are owed a refund on the over billing. If SJC can buy land for parks they can pay their debt to SJC residents and rate payers. I have explained this to you Shelly so many times.
Donna Fleming December 07, 2013 at 04:55 AM
Gus....you are right. Sam has been at the helm for 9 years and the city is floundering. It is almost criminal.
Donna Fleming December 08, 2013 at 02:22 AM
I just realized we have a famous detective and an author among us. If we need to get to the bottom of any mystery we know who to contact.

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