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By
Doug Nelson
Municipal Credit Analyst
Hilltop Securities Inc.
Improving value-to-lien ratios and continued growth in assessed valuations support our “Stable” municipal sector credit outlook for California community facilities districts (CFDs). Housing demand remains relatively strong, property values continue to rise, and limited new issuance should help preserve credit metrics and market spreads despite affordability and development pressures. Our previous sector outlook, which was also “Stable” was published back in February 2026 in The Municipal Market in 2026, HilltopSecurities’ Sector Credit Outlooks.
CFDs provide infrastructure financing, mainly for residential developments in California. CFD debt is repaid with special taxes that are levied based on parcel size, as opposed to property taxes that are levied based on property value, however, one metric of the creditworthiness of CFD debt is the value-to-lien ratio, which is the ratio of assessed valuation to debt outstanding of the district.
Demand for housing continues to be relatively strong in California due to housing shortages in various areas of the state. Increased mortgage rates could soften demand statewide, and affordability and development restrictions (based on water availability, local zoning and other factors) have hampered growth in some areas. Commercial and industrial property values have stabilized, so value-to-lien ratios for commercial and industrial CFDs are stable. Home prices and property values in California continue to grow, albeit at a lower rate than in the past. Overall, value-to-lien ratios have improved.
Los Angeles County’s assessment roll reached a record $2.272 trillion, an increase of $96 billion, or 4.42%, from the previous year. The countywide increase shows continued growth in the tax base despite severe losses associated with the Palisades and Eaton fires, although individual affected districts may face materially different conditions. All the counties that have released their 2026/27 assessment roll figures so far this year have reported similar growth in their property tax base to that of Los Angeles County.
Rising assessed valuations and restrained issuance should continue to improve value-to-lien ratios, while strong investor demand and limited supply should support stable spreads. Our sector outlook remains “Stable,” although higher mortgage rates, affordability pressures, development restrictions, and localized property-value weakness remain the principal risks.
As Head of Public Policy and Municipal Strategy, Tom Kozlik advises HilltopSecurities’ businesses and clients on strategies related to U.S. public policy, public finance, and infrastructure. He publishes regular commentary that provides insight into current trends affecting these themes across a variety of sectors and geographic regions. Kozlik is frequently featured in print, digital, and broadcast news segments and regularly offers his expertise as a keynote speaker and panelist at industry conferences and events across the country. He can be reached at 214.859.9439 or tom.kozlik@hilltopsecurities.com.
The paper/commentary was prepared by HilltopSecurities (HTS). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS Public Finance as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. This material has not been prepared in accordance with the guidelines or requirements to promote investment research, it is not a research report and is not intended as such. Sources available upon request.
Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.