League of Cities says debt safe
Published 11:23 pm Friday, August 12, 2011
The National League of Cities is getting involved in the fray surrounding the aftermath of the downgrade of the U.S. government’s rating.
After Standard & Poor’s announced it would downgrade the country’s pristine credit rating to AA+ from AAA, it also warned thousands of municipal and state governments throughout the country that their rating also could be at risk.
The same agency recently upgraded Suffolk one notch on its scale to AA+, the same rating the country now holds. That’s just one more upgrade away from AAA, the rating bestowed upon governments and companies considered to be an excellent credit risk.
However, S&P this week downgraded 11,000 municipal bonds, mostly for credit related to conduit bonds like those for housing agencies, hospitals and school construction.
The National League of Cities said in a statement this week the downgrades were not surprising, but noted that other municipal debt most likely will not be affected.
“Standard & Poor’s announcement that cities and states may keep their AAA bond ratings despite the recent downgrade of the U.S. federal government demonstrates the difference between U.S. federal debt and the municipal bond market,” the National League of Cities statement says.
“Unlike the federal government, municipal debt is typically not used to finance day-to-day operations,” the statement says. “Local and state governments use municipal bonds to finance infrastructure projects. Nearly all local and state borrowing is longer-term and debt service payments are predictable.”
“Despite the statements and the downgrades,” the statement continues, “residents should still be assured that cities will continue to provide the critical services residents demand. Cities still operate under debt cap limits and must go through exhausting processes prior to any borrowing to ensure their ability to repay.”