Traversing the Fiscal Crisis: What We Can Learn from the Strategies of Local Governments with Aaa Bond Ratings

Source: Evelina Moulder and Ron Carlee, Public Management, Vol. 92 no. 4, May 2010

The January 15, 2010, headline in Bloomberg’s news and data information said, “Municipal Market Handles Biggest Week of Bond Sales in a Month.” During the past two years, volatility in the bond market and downgraded ratings for both the bond insurers and the bond issuers have had an impact on the municipal bond market. Although the majority of local governments responding to ICMA’s 2009 “State of the Profession” survey indicated that the bond market had not affected them, what does the future hold?

ICMA’s 2009 survey indicated that local governments across a wide spectrum are suffering from the economic crisis, with impacts varying for a wide variety of reasons. Of significance are the different approaches used to deal with the downturn. Local governments with Aaa bond ratings are managing the economic crisis differently from other local governments, survey data show.

This article examines the differences between the responding local governments with a Moody’s Aaa bond rating and other respondents. Moody’s has given Aaa ratings to 133 municipalities and counties, 45 of which responded to the “State of the Profession” survey. The responses of the 45 Aaa communities are compared with the 2,169 local governments that responded to the survey and do not have a Moody’s Aaa rating.

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