Moody's Investors Service said yesterday that state intervention can help the finances of U.S. local governments and boost their credit quality, even though it does not always stave off bankruptcy, Reuters reported yesterday. Cities' budgets continue to show the scars of the 2007-09 economic recession, and many have turned to their states for help. But with the state-appointed emergency manager for Detroit leading that city to file for bankruptcy and default on its debt, rating agencies and investors are weighing the value of state intervention. According to Moody's, only Louisiana, Massachusetts, New Jersey, North Carolina and Rhode Island provide "strong" support to local governments, becoming "intimately involved in the maintenance of the financial position of a municipal entity, with the goal of avoiding or remediating financial distress." In contrast, 28 states have "neither formal powers to intervene on behalf of a municipality nor a track record of taking action to alleviate financial distress." Strong state support helps local governments provide essential public services and also boosts their credit quality, Moody's said, noting a state's commitment to oversight does not hurt that state's credit quality.
For more information on the different ways that states treat chapter 9 bankruptcy, be sure to pick up a copy of Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition.