Municipalities receive bond ratings from Moody’s or Standard and Poor’s (S&P) when they issue debt, borrowing from creditors to fund local projects.
If Moody’s or S&P give a municipality a higher debt rating, the borrowing costs are lower and can substantially impact the cost of large projects.
Over time, a town’s rating may change, depending on it’s financial circumstances. Among factors critical to a high rating are:
Meeting financial commitments (paying bond holders)
Wealth and income
Willingness to tax itself
Level of prior indebtedness
Macroeconomic factors may also impact the rating of all cities and towns.
To see how particular municipalities have trended over time, select this drop down.
This chart shows the Moody’s rating for each municipality over time, and I’ve converted these scores to a numeric axis with higher ratings listed above lower ratings. The annotations on the left and right side show the absolute rating each town had at the beginning and end of periods displayed.
How Would Debt Exclusions Impact Your Town’s or City’s Rating?
A municipality’s level of indebtedness can be compared to the total Equalized Valuation (EQV).
Towns with debt below 1% of EQV tend to have higher ratings, while towns above 4% of EQV have the lowest ratings. Massachusetts law prohibits a municipality from borrowing more than 5% of its EQV.
Therefore passing numerous debt exclusions before an expansion of EQV occurs may threaten to lower a town’s bond rating, and thereby increase future borrowing costs.
Aaa: Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa: Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A: Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba: Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B: Obligations rated B are considered speculative and are subject to high credit risk.
For ratings below Aaa, Moody’s now attaches to these ratings a number 1, 2, or 3, with 1 indicating the higher end of the category, and 3 indicating the lower end of the category. For purposes of the chart above, I have treated each level as an equal interval, so Ba2 to Ba1 is the same interval as Ba1 to Baa3.
Many towns show a Moody’s upgrade around 2009, and this can be seen by varying the town selected. Of course, this does not apply to previously Aaa rated towns.