Magazine article Nation's Cities Weekly

City Bond Rating Standard Change for Worse

Magazine article Nation's Cities Weekly

City Bond Rating Standard Change for Worse

Article excerpt

Central, small and rural cities' credit ratings may suffer because of subjective standards being applied by the two big municipal credit rating agencies.

The Wall Street Journal last week reported that Moody's Investors Service Inc. and Standard & Poor's Corp., the two big municipal credit rating agencies, have instituted more subjective standards that include a city's quality of life.

The change to a more subjective, quality of life standard could help growing suburban jurisdictions, but hurt central cities and rural towns.

The focus on quality of life and long-term viability of a city - or its future - raises a redlining question for all cities and towns with poor or declining populations. These municipalities, mostly central cities and rural small towns, are most in jeopardy under the revised standards.

In a period of economic hard times, a good credit rating is especially important. Cities and towns have been forced to borrow more often by selling municipal bonds to finance the cost of transportation improvements, compliance with federal environmental mandates and building new schools. The better the rating, the less it costs a city or town to borrow.

The Journal reported that S&P now examines such factors as the quality of a city's schools, "social justice," health programs, "harmony" and other socio-economic conditions when assessing a city's ability to pay off it bond obligations. Moody's is looking at the quality of city leadership and the steps a city is taking to make its community "livable."

Traditionally, municipal credit agencies looked at a city or town's books. Balancing a municipal budget was enough to help maintain a rating for the city or town's tax-exempt bonds. While a city's fiscal status is still important to both Moody's and S&P's bond ratings, quality-of-life measures are becoming more important.

The rating agencies have added a focus on how to achieve new agendas at a time of changing demographics and new realities. …

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