Misrated Muni Market Hoists $1.8 Billion Annual Tab on Taxpayers
Historically, ratings haven’t reflected the safety of local debt: Munis graded single-A defaulted at less than one-third the rate of like-ranked corporate debt over the 30 years through 2010.
Photographer: Kevork Djansezian/Getty ImagesU.S. states and localities still aren’t getting the respect they deserve in fixed-income markets five years after Congress mandated that municipal debt be graded on a level playing field with company borrowings.
So says a study co-authored by Marc Joffe, principal consultant with Public Sector Credit Solutions in Walnut Creek, California, which estimates the misgrading adds about $1.8 billion a year to the cost of state and local-government debt. While rating companies have revised thousands of issuers higher, many grades still don’t reflect municipal bonds’ low default rates, said Joffe, a former Moody’s Investors Service analyst.