General Question

jca's avatar

When municipalities have large-scale layoffs, does that impact their bond ratings negatively?

Asked by jca (35989points) August 25th, 2010

i work for a very prosperous county in NY State and we’re now being threatened with layoffs, in order to balance the budget. Does anybody know if layoffs affect the municipalities’ bond ratings in any way?

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3 Answers

marinelife's avatar

It doesn’t look like it:

“Here’s the financial paradox of the year: Just as they face the worst financial mess in decades, with endless reports of more layoffs and furloughs, many state and local governments will be assigned higher-letter bond ratings under a “global recalibration” in the credit-rating industry. Investors will see a host of new AAA/Aaa and AA/Aa muni bonds in the market, even though financial conditions have worsened in 2010 and reserves have been exhausted.”

Governing

bob_'s avatar

Yes, positively. A balanced budget means that the county’s debt is less risky, and therefore worthy of a higher rating. Then again, if the county is already in need of lay-offs, it’s probable its debt rating has been already downgraded; in that case, the announcement of lay-offs might no be enough to convince the rating agencies that the situation will indeed improve.

YARNLADY's avatar

Yes, usually it would. There are many other factors that are taken into consideration.

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