Local Officials Shake Off Worries About Federal Credit Downgrade

When Standard & Poor’s downgraded America’s credit rating Friday from AAA to AA+, a number of Northern Suburbs with AAA ratings faced the possibility they could suffer the same fate despite their unchanging finances.

A few days after Congress passed an , the bond rating agency claimed America was less likely to pay its obligations because of the mounting national debt.

'Solid as a rock'

According to both Standard and Poor’s and the New York Federal Reserve Bank, state and local credit ratings are not absolutely tied to the United States, but there is a strong influence. Since neither Moody’s nor Fitch downgraded American debt, there is ambiguity. 

“Our rating is by Moody’s, not Standard & Poor’s and I believe we are as solid as a rock,” said. Highland Park will be selling a $24 million bond issue this fall to finance the upgrade of its water treatment plant. 

Regardless of the difference between the agencies evaluation, no one can remain worry-free. According to a report by the New York Federal Reserve, “The agencies generally do not assign ratings to public or private sector issuers that are higher than their home country’s sovereign rating; therefore, sovereign ratings influence the ratings given local municipalities.”

After Standard & Poor’s downgraded U.S. debt Friday, it said on Monday “We may still assign a AAA rating to some state and local governments. We expect that many of these obligors ... should be able to retain ratings above the U.S.” 

Both Lake Forest and Niles are considering a refinance of debt in the coming months to take advantage of low interest rates. Lake Forest Mayor James. Cowhey, Jr., was displeased to hear about a potential change. His city is AAA-rated. 

“We’ve worked very hard to achieve our credit rating,” Cowhey said. “It would not make us very happy if we lost it because of the Federal government.”

Record-low interest rates

Lake Forest City Manager is more interested in taking advantage of record-low interest rates. His fears are also soothed because his city is rated by Moody’s rather than Standard & Poor’s. 

“We’re trying to get a City Council meeting together to address this Monday. We want to refinance some of our debt in October to take advantage of the low interest rates,” Kiely said. “Municipal rates are not necessarily determined by the Federal rate."

In Niles the situation is different. The Village is also graded by Moody’s but it has a AA1 rating, that agency’s equivalent of the United States’ new standard. Niles Village Manager George Van Geem is taking comfort in market conditions and promised support for low interest rates by the Federal Reserve Bank. 

“We’re planning to retire some old debt in the next couple of months, like refinancing a mortgage,” Van Geem said. “The Fed (Federal Reserve Bank) has promised to keep rates near zero the next two years.” 

Neither Wilmette nor Winnetka are planning to sell bonds in the near future. All three communities have AAA ratings. In Glenview, it is very unlikely unless financing is needed in the area surrounding the according to Village Manager . 

“Most of our capital improvements are pay as you go,” Hileman said. “Our chances of a problem are next to nothing. We are in the top one percent of communities in financial strength."

S&P vs. Moody's

Since Winnetka has no immediate plans to sell bonds for long term financing, Village Manager Robert Bahan is waiting to see the exact effects of the downgrade of United States Treasury issues. 

“It’s unclear right now. I’m not going to speculate about a very fluid situation at this point. We are in a very solid financial position,” Bahan said. “We have nothing planned in the very near term,” he added referring to the sale of long term debt. 

In Wilmette, Village Manager Timothy Frenzer was quick to mention his village is rated by Moody’s, which did not downgrade America’s debt securities. Like Winnetka and Glenview, there are no plans to issue long term obligations. 

“We’ll all have to issue debt some day. Public works improvements will have to issue debt or the redevelopment of the police station,” Frenzer said. “There is nothing imminent on the horizon.”