March 3, 2008 Is bond ratings for states and cities fair?
States and cities rarely dishonor their debts. The bonds they sell to investors are generally tax-free and much safer than those issued by corporations. But some officials complain that ratings firms assign municipal borrowers low credit scores compared with corporations. Taxpayers ultimately pay the price, the officials say, in the form of higher fees and interest costs on public debt.
The major complaint is coming from California (who currently rated A, but claims they should be rated triple A). However, the move to reform bond ratings has already attracted the support of half a dozen state, including Washington and Oregon. Apparently the group is lobbying Moody’s for some changes to the ratings scale. I doubt anything will change, but it is an interesting issue…and might become more important if the economy worsens.