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View Diary: Bankruptcy, coming to a municipality near you! (12 comments)

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  •  The rates are effectively set by (2+ / 0-)
    Recommended by:
    Kcaridad, Lujane

    the bond rating services.

    I live in Columbus, Ohio and Franklin County, Ohio, and these communities have had outstanding financial management for a very long time, 40 or more years, and both governments have the very highest bond ratings possible for a municipality, AAA.

    This rating leads to very low rates on our commnity's borrowing.

    Any other rating means that the cost of money to the government entity will be greater.  The question that should be asked is "what is Jefferson County's bond rating?

    If it is something like Baa or Bba, then the cost of the bonds will be reflected in this risk level.

    •  Usuually there are multiple bond ratings. (0+ / 0-)

      A municipality itself usually has quite good bond ratings for its full faith and credit backed bonds, absence an economic collapse of a Detroit scale.  Usually, a court order mandating a tax increase/municipal spending cut can be secured if worse comes to worse under balanced budget requirements.

      Individual municipal enterprises whose revenues alone are pledged towards repayment are evaluated individually and usually have worse ratings.  While the municipality is unlikely to go bust, the sewer authority might (and indeed, if it can't refinance, it will).

      Also, most municipal issues of all types aren't amenable to either putting up collateral or to seizing assets in the event of a default to secure payment.  How do you foreclose on a highway or a sewer system?

      "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

      by ohwilleke on Fri Apr 11, 2008 at 09:50:07 AM PDT

      [ Parent ]

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