Moody’s Revises Rating Criteria for Local Governments

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On January 15 of this year, Moody’s announced a revised methodology for its evaluation of local government general obligation credits. Moody’s overall methodology is to evaluate each locality seeking/maintaining a rating over four categories: (1) economy/tax base of the area, (2) finances of the locality (fund balance), (3) management of the locality and (4) debt/pensions. Their revised methodology decreases the weight given to economy/tax base factors and increases the weight given to debt/pension load by a similar percentage. They have also announced a scorecard to make more explicit the criteria they consider in each category.

What does this mean to your locality? It means smaller localities may have an opportunity for a boost in ratings, but it also means that unfunded pension liabilities are being factored more heavily against localities than ever before.