S&P Drags Cities Into the Brave New World

Mark Bergen
Forbes
August 10, 2011

Shortly after Standard & Poor’s knocked down the national credit ratings, news arrived that the agency was moving to downgrade “thousands” of municipalities as well. This prompted several stories about the forthcoming pain for financially burdened cities. Bond Buyer, a public finance journal, wrote that state and local governments were now pulled into the “brave new world where the federal government is no longer triple-A across the board.”

• A d v e r t i s e m e n t

The brave new world is less dire and, as always, a bit more complicated than it seems. And the more important impact may not be the blow to U.S. cities, but the long-term, significant change to urban infrastructure.

Yesterday, S&P concluded that it would hold off on any further action until the final pieces of the debt ceiling debacle are complete. The ratings agency even suggested that some well-oiled municipalities could keep their AAA despite a national downgrade, an idea that raised a few eyebrows. And muni experts questioned the logic. “Clearly, in order to keep the system logical and coherent,” Christopher Mier, a managing director at Loop Capital Markets, told reporters, “there’s going to be a lot of downgrades.”

But the immediate impact may not be so cataclysmic. When I reached him by phone, Mier noted that an across the board downgrade would not severely harm most municipalities. “Cities that have otherwise very good credit characteristics,” he said, “but those who are judged to have some Federal exposure will see a downgrade.” A ratings shakeup won’t simply strike cities that are “cash-strapped” or dependent on Federal largess for financial stability. A downgrade is more likely to hit areas, like a city with a Federal airport, that are simply tied to unsteady Congressional cash. “But the market won’t attribute much to it,” Mier added.

Read full article

This article was posted: Wednesday, August 10, 2011 at 12:16 pm

---

---

---

---