City of St. Louis retains good credit rating - for now
On Saturday, Standard and Poor's downgraded the debt of the United States a notch.
But the ratings firm continues to see debt issued by the city of St. Louis as a good investment, though vulnerable to economic shocks.
S&P is one of two ratings agencies that recently reaffirmed relatively strong marks for St. Louis municipal bonds. On Wednesday, Moody's issued an Aa3 rating for the city, which means bonds are of "high quality and are subject to very low credit risk." Moody's also kept its outlook stable, meaning it expects that rating to continue.
Comptroller Darlene Green said the ratings show the agencies are paying attention to the city's "conservative" financial management, which includes a third year of mandatory furloughs and other budget cuts.
"They're considering the city of St. Louis to be going in the right direction as far as its finances are concerned, even though we have our challenges such as the population loss and other economic indicators such as high unemployment," Green said.
Ratings agencies evaluate entities in a bubble, says municipal finance attorney Bill Kuehling, a senior partner at the firm Polsinelli Shughart. So it's not surprising that the federal downgrade didn't immediately lead to a change in St. Louis's ratings.
But Kuehling says it's a different story when you look at the long-term impact of the market turmoil spawned by the downgrade.
The city's been plagued for years by rising pension costs, Kuehling says. Much of the need for increased city contributions has come from the beating the funds took in the 2001 and 2008 recessions.
Stocks were creeping back up, Kuehling says. Then the downgrade happened, and the Dow went crazy.
"That will reverse those gains that were being made and could potentially lead to increased dollar amounts having to be put in again by the local governments into their pension systems. That will continue to erode local finances, which will lead to problems of either having to look to raise revenues or cut services" to maintain pension funding, he said.
The more pressure on city finances, Kuehling says, the riskier of an investment its debt becomes.