Backward-Looking Municipal Bond Ratings: Rating the Raters

The national economy is showing signs of life, state and local tax receipts are on the rise, local budgets are returning to balance. Nevertheless, Moody’s and S&P are downgrading more tax-supported credits than they are upgrading. On the surface such rating actions may seem incongruous with the economic conditions. But, in fact, they are all too predictable for those familiar with the municipal market. Ratings assigned by the major public ratings companies are a backward-looking indicator of an issuer’s credit worthiness.