August 8, 2011

S&P's Lesser Noticed Statement "Starring" a Certain Rhode Island Town

Monique Chartier

In the perfectly justified consternation and alarm Friday following upon Standard and Poor's downgrading of the United States' credit rating, let's not miss the other statement issued on the same day by S&P which hits a little closer to home. [Although the ramification of the first statement may not be remote at all.] From Reuters.

Even an anti-default state law might not prevent Central Falls, the tiny Rhode Island city forced into bankruptcy by ballooning pension costs, from defaulting on some debt, credit agency Standard & Poor's warned Friday.

Quoting S&P directly:

Given the Chapter 9 bankruptcy filing, the prospect of full and timely payments on the General Obligation debt is uncertain, notwithstanding that, pursuant to the recently amended Rhode Island General Laws in Chapter 45-12-1, a first lien on ad valorem taxes and general fund revenues secures the bonds.
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It's all the teabaggers fault...and Bush's.

Posted by: Tommy Cranston at August 8, 2011 7:58 PM

Ding ding, Tommy!

Posted by: Monique at August 8, 2011 9:04 PM

I wonder if "The Virginian" has any interest in this:

Moody's puts local governments' credit ratings on notice
By: Hayley Peterson | Examiner Staff Writer 07/28/11 8:05 PM
Moody's Investor Services is threatening to downgrade the credit ratings for dozens of local governments in Maryland, Virginia and 29 other states, based on how the federal government's negotiations concerning the U.S. debt ceiling affects financial markets.

The ratings agency placed more than two dozen counties and cities in Virginia and at least seven local governments in Maryland on its credit rating "watch list" on Thursday, citing concerns over the federal government's presence in those areas.

Affected governments include Fairfax, Arlington and Prince William counties in Virginia, as well as Rockville, Prince George's County and Montgomery County in Maryland, as well as smaller incorporated cities and towns in the Washington area.

"The ratings of these local governments, particularly those with a high economic dependence on federal activity, would be vulnerable to a downgrade of the U.S. government," said Moody's Senior Vice President Matt Jones.

The action comes after Moody's placed Maryland, Virginia and three other state governments that have AAA ratings on its "watch list" last week, pending a possible downgrade to the federal government's credit rating as a result of congressional budget action.

Local lawmakers are frustrated that the federal government's actions have imperiled their credit rating.

"The continued inaction and partisan bickering over the very high amount of debt the federal government is carrying and how to deal with it is putting at risk the credit rating Fairfax County has worked so hard to achieve and maintain for the last 36 years," said Sharon Bulova, chairwoman of the Fairfax County Board of Supervisors. "Fairfax County does not have a debt problem, the federal government does."

Maryland state Del. Tom Hucker, D-Silver Spring, said, "Failure to raise the debt ceiling would undermine decades of fiscal discipline and unjustly punish all Marylanders."

Moody's plans to reassess the local government's ratings within a week to 10 days after the Aug. 2 deadline by which Congress must act to raise the U.S. borrowing capacity, or risk defaulting on its debt.

If a government's credit rating is lowered, debt becomes more expensive in the form of higher interest rates.

"If the federal problem is protracted, we may have to consider a partial hiring freeze," said Mark Jinks, the deputy city manager of Alexandria.

Posted by: Phil at August 9, 2011 7:43 AM

Holy crap, Phil. Virginia is on a credit watchlist? I had no idea, this changes everything. Our low unemployment, low taxes, excellent schools, and budget surplus don't mean anything now. I should quit my job, move back to Rhode Island, and start making pay-to-play donations to Democratic candidates right away.

Posted by: Dan at August 9, 2011 3:18 PM

Just hope that the big federal teat is not yanked away as you feed as a piglet would off a big sow and remain in your Shangri La.

Posted by: Phil at August 10, 2011 1:51 PM
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