Debt Mess Could Impact Local Top Credit Ratings

Moody's Investor Service notified local governments across the country Thursday that ratings could be downgraded.

Updated 4:45 p.m.

The continued impasse on Capitol Hill over raising the debt ceiling is spilling over into local governments.

Friday, several Northern Virginia mayors and chairs of city and county governments signed a joint statement in protest of Moody’s Investor Service’s intent to review the bond ratings of more than 100 local governments, including Fairfax County and Alexandria City.

The statement, signed by Alexandria City Mayor Bill Euille and Fairfax County Board of Supervisors Chair Sharon Bulova (among others, said, in part:

“Northern Virginia does not have a debt problem, the federal government does. 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 ratings of our Northern Virginia localities.”

Euille, Hyland, Others React

Euille told WTOP’s Mark Plotkin this morning, "It's time for the politicians—both on the left and the right—to take off their boxing gloves and stop acting childish….  Let's not kid ourselves, it's just sheer politics."

Gerry Hyland, Fairfax County’s Mount Vernon District supervisor, in an email to Patch: “It is unconscionable that Congress not do their jobs and find a way to compromise on the debt ceiling.  Fairfax County and the Commonwealth are innocent by-standers of political sniping on the Hill. Should Fairfax County’s AAA bond rating be downgraded, there is a possibility that we delay bond issues and infrastructure projects that not only improve our schools and communities, but also provide jobs for the region.  It will have a negative trickledown effect into the pocketbooks of all Mount Vernon residents.”

Mark Flynn, director of Legal Services for the Virginia Municipal League, said this morning: "For the localities, it comes down to the fact that the rating agencies say because of the lack of federal money that may not flow your way, then we think it will have an adverse effect on your borrowing ability."

"It’s more than just a news item for local governments," he said. "It can really hurt the plans that they have to do different things and to meet the needs of the citizens."

"There are various programs in every locality that are dependent on federal dollars, either direct or passed through the state. In Virginia's economy, we have defense facilities across the state. We have a lot of federal facilities and we just get a lot of federal money."

He also said this could could hurt local infrastructure projects and that this credit watch is "out of their control," referring to local officials who are protesting inaction by Capitol Hill. 

Friday morning, President Barack Obama took to the airwaves again to encourage people to call, tweet or email their senators and representatives to encourage compromise.

Long-Term AAA Ratings at Risk

Both the City of Alexandria and Fairfax County have AAA ratings from Moody's.

"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, chair of the Fairfax County Board of Supervisors, in a statement.

"For the first time since 1975, Fairfax County (as well as local and state governments across the country) is facing the possibility of losing our AAA credit rating from Moody’s Investor Service, a decision that will not interfere with our ability to meet our financial obligations but is nonetheless very troubling," she noted.

Bulova pointed out the county's reliance on federal contractors as a reason for the county being singled out. 

"The decision by Moody’s to declare the Commonwealth of Virginia’s Aaa rating as vulnerable to a downgrade was based on Virginia’s heavy reliance on federal spending," she said. "Fairfax County is home to a large population of federal workers and businesses that rely on federal contracts. This linkage, and the impasse at the federal level, puts our rating at risk."

David Jacobson, a spokesperson for Moody's, said because of their ties to the federal government, Fairfax County and Virginia would be susceptible to a downgrade if the U.S. defaults next week. Four variables played into Moody's decisions on putting municipalities on review: reliance on capital markets; dependence on federal revenues; sensitivity to macroeconomic cycles; and financial resources to offset the risks, such as a rainy day fund.

Data on Fairfax County regarding these variables was not available.

Jacobson said both Maryland and Virginia are in a similar boat because of their proximity and ties to the federal government.

"Virginia was above average in federal employees in percentage of the state's total employment. Virginia also has a lot of federal procurement contracts as a percentage of state GDP," Jacobson said. "We found it was more sensitive to national economic trends based on employee volatility due to U.S. fluctuations.

A downgrade is not definite if the U.S. government defaults.

"There are a lot of ifs here, but the bottom line is the rating remains the same for now," Jacobson said. "We will see what happens on Aug. 2. Our analysts will study it [and] will make any decisions if they deem it necessary."

Chamber Encourages Congress to Compromise

"Running through the August 2 deadline will put contracts in jeopardy and threaten credit ratings, including the Commonwealth’s, putting at risk every business and citizen in the nation, especially Northern Virginia’s government contracting community," said Jim Corcoran, president and CEO of the Fairfax County Chamber of Commerce.

“The Fairfax County Chamber of Commerce encourages members of Congress and the White House to come to a compromise on the debt ceiling debate,” he said.

Bulova summed up her comments with a swipe at Capitol Hill: "To put it simply: Fairfax County does not have a debt problem, the federal government does."

"Even during times when Fairfax County faced serious fiscal challenges, such as during the Doomsday Budgets of the mid-1990s, our Board was able to make the difficult and sometimes unpopular decisions necessary to balance our budgets something the federal government has not done," she said. "I am proud of the financial record of Fairfax County and the decisive actions our Board has taken to keep our top credit rating."


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