state government credit quality: down, but not out!

State Government Credit Quality: Down, but Not Out!Author(s): Craig L. JohnsonSource: Public Administration Review, Vol. 59, No. 3 (May - Jun., 1999), pp. 243-249Published by: Wiley on behalf of the American Society for Public AdministrationStable URL: http://www.jstor.org/stable/3109952 .

Accessed: 14/06/2014 20:54

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Wiley and American Society for Public Administration are collaborating with JSTOR to digitize, preserve andextend access to Public Administration Review.

http://www.jstor.org

This content downloaded from 195.78.109.119 on Sat, 14 Jun 2014 20:54:37 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=black

http://www.jstor.org/action/showPublisher?publisherCode=aspa

http://www.jstor.org/stable/3109952?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


Sate Governent Credit Quality. Down, But Not Oud

Craig L. Johnson, Indiana University

This study analyzes state government credit quality over time. We find that overall state-government credit quality declined marked- lyfrom 1970 to 1995. The decline was associated with a substantial increase in state real per capita debt. Despite the decline, the current overall credit quality of the states is solid. In addition, rating agencies expressed significantly different credit evaluations of state governments in 1970, but such differences between rating agencies have evaporated over time.

Municipal (state and local) governments issue debt to finance capital projects and meet their cash flow needs. Most state governments issue large amounts of long-term debt on a regular basis. The state government share of outstanding municipal debt grew significantly from 1961 to 1992, from 26 percent to 38 percent (U.S. Department of Commerce, 1975-1996), with the rate of growth accelerating in the 1980's (Regens and Lauth, 1992). Accordingly, state government debt is taking up an increasingly larger share of municipal financial resources and will continue to do so in the future. Yet, the ability of state governments to repay their debt may have been adversely affected by the fiscal stress they underwent in the 1980's and early 1990's (Poterba, 1994; Gold, 1995). Since the state government sector surplus peaked at histor- ical highs in the mid-1980's, the fiscal position of the states has deteriorated to the point where in 1992 the state sector suffered its largest deficit in U.S. history (Fleenor, 1995). Inevitably, such fiscal problems adversely affect the ability of state governments to finance their citizens' capital needs at lowest cost.

In this article state government credit ratings are used to analyze aggregate state government credit quality from 1970 to 1995. Our analysis focuses on changes in the overall credit quality of state governments, and changes in the comparative credit ratings of Moody's Investors Service and Standard and Poor's. This article adds to the public administration and financial certification literatures by providing a new means of understanding and analyzing the aggregate structure of state government credit quality over time. In addition, it appears that the only prior time series study of state government credit quality in the academic literature was published in 1978 and examined the period 1950-1972 (Osteryoung and Blevins). The study used Moodys ratings, but did not compare credit quality judgements across rating agencies. The other state government credit quality study in the literature mea- sures the impact of ratings on yields at a single point in time (Liu and Thakor, 1984).

Public Administration Review . May/June 1999, Vol. 59, No. 3 243



An analysis of credit rating changes over time provides a useful framework for analyzing the relationship between government financial management decisions and the actions of rating agencies. Specifically, a finding of deteriorating credit quality over time would sug- gest that public officials have been ineffective at managing the factors-economic, financial, debt, and administrative -that credit rating agencies consider important. Such a finding would demand a major reassessment of state government financial management. On the other hand, an improving credit condition would imply just the opposite, that state government officials have been increasingly successful at managing their fiscal affairs.

This article also adds to the financial certification literature by examining dual certification on a market structure basis by comparing Moody's and Standard and Poor's credit ratings for the same issuer over time. Prior certification studies (Hsueh and Kidwell, 1988; Thompson and Vaz, 1990) have analyzed dual certification for individual debt issuers at one point in time by estimating the value of a second rating on the cost of a new bond issue. Historically, state governments obtained a single credit rating from Moody's or Standard and Poor's when bring- ing a new bond issue to market. Now, state governments routinely purchase two ratings from Moody's and Stan- dard and Poor's. This study addresses the question of whether more than one rating on a state government bond issue is necessary. Also, virtually all of the credit certification literature looks at local governments and corporations. This article extends the literature by analyzing state governments exclusively.

Our analysis shows that the distribution of state credit ratings have changed markedly since 1970. In the aggregate, state governments in the United States are less cred- itworthy (rated lower) in 1995 than they were in 1970. The drop in credit quality is particularly sharp for Stan- dard and Poor's ratings. Though fewer state governments are now rated AAA (Aaa), most states are still highly rated AA (Aa) credits. The major change from 1970 to 1995 was from a distribution skewed towards very high credit quality to a more "normal" distribution represented pic- torially by a standard normal curve. While state government credit quality decreased since 1970, overall credit quality throughout the states is still strong. Therefore, while the long-term fiscal condition of some states may have changed for the worse, any story of the inevitable fiscal collapse of the states is premature.

Asset quality certification judgements between rating agencies appear to have changed as well. For issuers rated by both agencies in 1970, a much higher percentage of states were rated AAA (Aaa) by Standard and Poor's than by Moody's. This indicates that in 1970 either Moody's ratings were biased on the low-side or Standard and Poor's ratings were biased on the high-side, i/ any rating agency bias existed at all. While the shape of the rating distribution has changed substantially for both firms, the

distribution for each firm in 1995 was almost identical, indicating no discernable bias between firms. These results support Standard and Poor's claims regarding the new and improved certification quality of their ratings, since it seems that since 1970 their evaluation of state government credit quality has become, in fact, closer to that of Moody's Investors Service.'

The following section provides some background information on the role of credit rating agencies in the municipal securities market. We then develop the empirical analysis, including hypothesis tests and a discussion of the empirical results. Finally, we provide concluding remarks.

Background on the Role of Credit Rating Agencies

Traditionally, state governments certify their credit quality-the ability and willingness to repay debt in full and on time-to potential bond investors by purchasing the credit rating services of the two major commercial credit rating agencies, Moody's Investors Service and Standard and Poor's. Moody's has been conducting municipal credit ratings since 1914, and Standard and Poor's since 1940 (Public Securities Association, 1990).2 A critical factor in determining the interest rate that bor- rowers pay on a bond issue is their credit quality as mea- sured by their credit rating. For a fee paid by the issuer, a credit rating agency will provide a rating of a new debt issue prior to sale and periodic updates of an issuer's credit standing. A rating seeks to answer a simple risk-relat- ed question for lenders: What is the probability of receiving full and timely repayment of principal and interest on a specific debt obligation? The rating is an assessment by the rating agency of the bond issuer's ability and willingness to repay the debt, and is based on a wide range of factors that can be grouped into four general classifications: economic, financial, administration, and debt.

As shown in Table 1, the rating is indicated by a dis- crete symbol (e.g., Aaa, Aa, A, Baa) that provides investors with an objective measure of an issue's credit

Table 1 Moodys and Standard & Poor's Bond Rating Classifications

General Quality Characteristic Moody'sa Standard & Poor'sb Prime Aaa AAA Excellent Aa AA Upper Medium A A Lower Medium Baa BBB Marginally Speculative Ba BB Very Speculative B, Caa B, CCC, CC Default Ca, C C, D a. As of January 1997, Moody's uses a numerical suffix (modifier) of 1, 2, or 3 to indicate relative standing within the category. Modifiers apply to all rating categories except Aaa, Caa. Ca or C. b. Standard & Poor's uses modifiers of + or - to indicate relative standing within the major rating category.

244 Public Administration Review * May/June 1999, Vol. 59, No. 3



quality-the higher the rating the "better" the credit quality and thus the lower the default risk. Issues with a rating below Baa (Mood/s) or BBB (Standard and Poor's) are considered below investment grade. By offering an informed independent judgement on the credit quality of a new debt issue, the rating agencies provide an independent certification of its quality.

Credit rating agencies monitor the credit quality of major debt issuers on a regular basis and will change, upgrade or downgrade, a debtors credit rating if their ability and/or willingness to repay changes. Many state government credit ratings demonstrate substantial volatil- ity over time. For example, the state of Massachusetts' general obligation debt was downgraded four times in 1989 from AA+(plus) to AA in May, and later lowered to AA-(minus) in June, and downgraded to A in July, and finally bottoming out at BBB in December, making it the lowest rated state in the nation. Since 1992, the state has been upgraded twice to A+(plus).

On a macroeconomic level, credit rating agencies affect the allocation of capital in the market by certifying to the aggregate credit quality of a particular financial market sector, such as the municipal securities market. While the credit rating of an individual debt issuer provides the market with valuable information about the riskiness of the issuer, the structure of aggregate credit ratings provides significant information on the riskiness of the market as a whole. By analyzing and informing the market on the credit quality of most issuers, rating agencies provide certification of the aggregate credit quality of a securities market.

Empirical Analysis Data and Methodology

To conduct the empirical analysis on state government credit quality we gathered information from Standard and Poor's and Moody's on each states' credit rating dat- ing back to 1970. We use the information on each state's credit rating to develop a frequency distribution of the proportion of ratings per category (AAA, AA, A, BBB) for each rating agency for five-year intervals from 1970 to 1995.3 We then compare rating distributions over time and across rating agencies to test our null hypotheses of no difference in ratings over time and across rating agencies. Our comparison of credit rating distributions is based on the statistics that constitute the relative moments of a distribution for ordinal level data, skew- ness, kurtosis, median, and the Wilcoxon Signed-Rank Test, which is a nonparametric test commonly used to ascertain differences between populations (Anderson, et aL, 1987). We use a matched-paired approach by including in the sample only states rated by both agencies at each time period to test two basic null hypotheses, the first being that:

Hi: There was no change in aggregate state government credit quality from 1970-1995.

In other words, the credit quality of state governments, as reflected in their credit ratings, was the same in 1995 as it was in 1970. This hypothesis implies that there has not been any significant deterioration or improvement in state credit quality. Since credit rating agencies rely heavily on economic and financial factors (including debt burden) to determine credit quality, the affirmation of this null hypothesis implies that the economic and financial condition of the states did not change significantly over this period. If the aggregate economic and/or financial condition of states changed from 1970 to 1995 we would expect to see the change, whether negative or positive, reflected in the aggregate structure of state credit ratings. An improved credit picture would imply lower levels of default risk, likely resulting from stronger state economies and/or more effective financial management practices. A bleaker credit picture would imply higher levels of default risk, likely resulting from weaker state economies and/or inadequate financial management practices. If we find evidence of any significant changes, we will then conduct an analysis of the likely causes. These results will serve to better inform our understanding of the relationship between state government financial condition and default risk over time.

Our second hypothesis test analyzes differences in credit ratings between Moody's and Standard and Poor's from 1970 to 1995. This null hypothesis is the following:

H2: There is no difference in the credit rating distribution of Moodys and Standard and Poor's.

Each agency's rating distribution will be examined for each five-year interval from 1970 to 1995. Previous research on the difference in ratings between Moody's and Standard and Poor's (Morton, 1975; Cluff and Farn- ham, 1984) found that Standard and Poor's ratings were usually higher. These studies, however, have significant limitations. The studies covered only local governments, not state governments; they used data that is now dated; and their sample covered only one year of cross-sectional, not time series, data.4 Contemporary research on the value of additional credit ratings is needed at the state government level because state governments have devel- oped the practice of routinely purchasing two (and some- times three) ratings from credit rating agencies. It is not clear that obtaining a second rating produces a net reduc- tion in interest costs for state governments.5 Theoretical- ly, if rating agencies certify to different aspects of default risk, then it may be cost effective to obtain a second rating. But, if the rating agencies are certifying to the same thing, a second rating may be redundant and economi- cally unnecessary. Our analysis of hypothesis 2 will shed some light on this financial certification issue.

State Government Credit Quality: Down But Not Out! 245



Empirical Results Figures la-If provide the credit rating distribution for

state governments rated by both Moody's and Standard and Poor's from 1970 to 1995, and Table 2 shows per- centages for selected rating categories.6 The figures illus- trate a major shift in credit ratings from 1970 to 1995. For both agencies the percentage of Aaa/AAA rated state credits is lower in 1995 than in 1970. The percentage of states rated AAA by Standard and Poor's is much lower in 1995 (15 percent) than in 1970 (70 percent). The percentage of states rated Aaa by Moody's is modestly lower in 1995 (20 percent) than in 1970 (30 percent). In 1995, both agencies had most states rated Aa/AA. This was not the case for either agency in 1970, especially Standard and Poor's.7

The major shift in Standard and Poor's ratings came between 1970 and 1975, when the percentage of AAA credits dropped from 70 percent to slightly under 40 percent. This was probably in response to the escalating economic crisis in the nation during this period, as indicated by the rapid rise in the unemployment rate from 4.8 percent in 1970 to 8.4 percent in 1975. The change in Moody's rating distribution is less episodic and seems to mirror a slow but persisting diminution of state financial condition. Nevertheless, most states are currently rated Aa/AA by both agencies indicating that the ability and willingness of most states to repay their debt in full and on time is very strong. Indeed, it provides "double" certification that the states are generally in very sound financial condition.

The major shift in the evaluation of state government credit quality between rating agencies also took place between 1970 and 1975. We can reject the null hypothesis of no difference between Moody's and Standard and Poor's for 1970, but we cannot reject it for any other test year: 1975, 1980, 1985, 1990, and 1995.8 Therefore, a significant difference in the evaluation of state credits did at one time exist between the rating agencies, but such a difference has long since disappeared.

This point is further reinforced by the data in Table 3 which shows whether a state received a single rating, two homogeneous ratings (same rating category (e.g., Aa/AA)), or split ratings (different rating categories (e.g., Aa/A)). In 1970 most states received a single rating from only one agency, and only a few states received an homogeneous rating from both agencies. Since 1970 the num- ber of single ratings have dropped precipitously to the point where, in 1995, zero states have a single rating and only a few states have a split rating. Since most states are evaluated as having the same general level of risk, it appears that the evaluation of state credit quality across rating agencies is very similar.

This confirms the results of the hypothesis tests for differences in the credit rating distribution between firms from 1970 to 1995. In 1970 there was "dual" certification in the marketplace, where a second rating provided a

Table 2 Percentage Distribution of States for Selected Rating Categories

Moods Standard & Poor's Year Aaa Aa A AAA AA A 1970 30% 30% 30% 70% 20% 10% 1995 20% 60% 18% 15% 73% 12% Source: Calculated from information provided by Moody's Investor Service, Inc., and Standard and Poor's.

second, and possibly substantially different, opinion on credit quality. In 1995 there is "joint" certification, where on average one rating agency appears to merely certify to the judgement of the other, and it is question- able as to whether or not the additional certification acts as an independent "second" opinion.9 It does however point to the value of a split rating. Namely, that split ratings may send a strong signal to the market precisely because they are so rare.

This brings up a more general question concerning rating agency certification. What are rating agencies certifying to? On an individual bond issue, rating agencies certify to the quality of the bond issue. Our analysis thus far points out that on an aggregate basis the state government rating structure certifies to the credit quality of the states as a whole. If so, there should be a discernable relationship between the structure of credit ratings over time and the variables that determine financial condition and the ultimate ability of state governments to repay their debt.

To answer this question we analyzed the same basic state financial and economic data, shown in Tables 4a-4c, that rating agencies use to ascertain credit quality. The tables present summary and t-test statistics for the following variables from 1970 to 1995: unemployment rate, real per capita income, and real per capita debt.1O We expect this data will show a pattern of diminishing financial condition that is reflected in the reduced rating levels previously discussed.

While the dramatic increase in the unemployment rate from 1970 to 1975 appears to have been reflected in a lower credit rating distribution, the steadily improving employment picture does not seem to have led to credit rating upgrades; nor has the steady growth in real per capita income.11 Indeed, the trend from 1975 to 1995 is fewer triple-A rated credits and more double-A rated credits for both agencies. It is possible that the positive

Table 3 Distribution of Ratings by Type

Type of Rating 1970 1975 1980 1985 1990 1995 Single 64% 32% 25% 15% 5% 0% Identical Category 13% 32% 58% 61% 80% 85% Split 23% 36% 17% 24% 15% 15% Source: Calculated from information provided by Moody's Investor Service, Inc., and Standard and Poor's.




Figure la 1970-MoodYs Investors Service and Standard and Poor's State Credit Rating Distribution (states rated by both agencies)

30%

S&P's

Moody's

S US ~~~m A AA AAA

Figure l b 1975-Mood/s Investors Service and Standard and Poor's State Credit Rating Distribution (states rated by both agencies)

30%~~~~~~~~~a S&P's

20%

Moody's

B US - A M AAA

Figure Ic 1980-Mood/s Investors Service and Standard and Poor's State Credit Rating Distribution (states rated by both agencies)

WF

?0%

30%- -

L S&Psoodys

* U _ A MA A

Figure Id 1985-Moodys Investors Service and Standard and Poor's State Credit Rating Distribution (states rated by both agencies)

S&P's

Moody's

3 ~~ ~~m A AA MAA

Figure le 1990-Moodys Investors Service and Standard and Poor's State Credit Rating Distribution (states rated by both agencies)

S&P's

tol 0 DMoody's

B m A M AM

Figure If 1995-Moodys Investors Service and Standard and Poor's State Credit Rating Distribution (states rated by both agencies)

WV-

S&P's

,30 M s

*1 A




Table 4a Unemployment Rate for States Rated by Moody's and Standard and Poor's

Summary Statistics 1970 1975 1980 1985 1990 1995 Mean 5.1 9.1 7.0 7.1 5.5 5.4 Median 4.7 8.8 7.2 6.5 5.4 5.4 Standard Deviation 1.7 1.8 1.1 2.1 1.1 1.1 Count 14 28 30 35 39 40

T Statistics 1970 -6.83* -3.698 -3.371 * -0.793 -0.596 1975 5.222* 4.002 9.239* 9.521* 1980 -0.242 5.530* 5.932* 1985 3.981* 4.240* 1990 0.399 * Difference is statistically significant at the .05 alpha level. Source: Calculated from information obtained from the US Department of Labor, Bureau of Labor Statistics.

Table 4b Real Per Capita Income for States Rated by Moodys and Standard and Poor's (in constant dollars, 1987 = 100)

Summary Statistics 1970 1975 1980 1985 1990 1995 Mean 10,333 10,545 11,563 12,721 13,902 14,524 Median 10,615 10,385 11,826 12,693 13,541 14,390 Standard Deviation 1,665 1,876 1,915 2,190 2,418 2,140 Count 14 28 30 35 39 40

T Statistics 1970 -0362 -2.110* -4.012* -5.890* -7.288* 1975 -2.009* -4.117* -6.297* -7.994* 1980 -2.239* -4.418* -5.996* 1985 -2.175 -3.546* 1990 -1.194 * Difference is statistically significant at the .05 alpha level. Source: Calculated from information obtained from the US Department of Labor, Bureau of Labor Statistics.

Table 4c Real Per Capita Debt for States Rated by Moodys and Stan- dard and Poor's (in constant dollars, 1987 = 100)

Summary Statistics 1970 1975 1980 1985 1990 1995 Mean 818 902 1,004 1,333 1,409 1,312 Median 692 628 650 800 936 897 Standard Deviation 644 803 923 1,698 1,309 1,002 Count 14 28 30 35 39 40

T Statistics 1970 -0.356 -0.751 -1.508 -2.130* -2.058* 1975 -0.442 -1.307 -1.930 - 1.840 1980 -0.974 -1.484 -1.312 1985 -0.211 0.063 1990 0.364

* Difference is statistically significant at the .05 alpha level. Source: Calculated from information obtained from the US Department of Labor, Bureau of Labor Statistics.

trends in employment and real per capita income were offset by the negative trend in debt burden.

Real debt per capita increased from a mean of $818 in 1970 to $1,312 in 1995, an increase of over 60 percent in real terms. Therefore, while the economy improved in real terms since 1970, the concomitant increase in the debt burden has not increased the overall ability of states to repay their debt in full and on time. This leaves states vulnerable to economic downturns, and unfortunately, may place downward pressure on state credit ratings. This may be the reason why strong economic performance, especially since the mid-1980's, is not reflected in a higher credit rating distribution in 1995. Since the amount of debt per capita is under the control of public officials, credit ratings are substantially a function of the financial management decisions of public officials. It appears that strong economic performance cannot offset debt management practices that do not adequately con- strain increases in real debt burden.

Conclusion This article has analyzed state government credit quali-

ty from 1970 to 1995. As reflected in the ratings provided by commercial firms, state credit quality is weaker in 1995 than in 1970, but it is still strong. However, the solid economic performance of many states in recent years has not been fully translated into an improvement in aggregate state credit quality. This appears to be due, at least in part, to the growing state government debt burden. High debt burdens are apparently placing a drag on higher state government credit ratings. Since the amount of debt issued is under the control of state government officials, they must more effectively manage their debt burden to enable their improving economic condition to be fully incorporated into positive rating changes.

It appears that Moodys Investors Service and Standard and Poor's provide joint credit quality certification at the state level. The likelihood of the rating agencies disagree- ing on the credit condition of a state government was much higher in 1970 than in 1995. Credit rating evaluations of state governments differed significantly in 1970, but such differences have disappeared over time. This points to some potential future research issues. How much credit quality certification is enough? Since all rated states now obtain two ratings, do they receive a net economic benefit from purchasing an additional credit rating? Is an additional rating beneficial for certain bond issuers, but not others? Answers to such questions could help state government officials certify their credit quality to the financial market, while simultaneously saving their citizens money.

Craig L. Johnson is an assistant professor (associate as of July 1999) of Public Finance and Policy Analysis in the School of Public and Environmental Affairs at Indiana University.




Acknowledgement I would like to thank Holly Barstow and Kenneth Kriz for their exceptional research assistance on this article.

Notes

1. Standard and Poor's recently launched a media campaign frontally challenging the preeminence of Moody's by adver- tising that they rate more debt than Moody's and suggesting that their ratings are at least as valuable to investors.

2. Moody's Investors Service and Standard and Poor's rate most of the debt coming to market. Other rating agencies include Fitch Investors Service and Duff and Phelps.

3. Since credit rating agency subcategory notches (e.g., +, -, 1, 2) have changed over time and do not precisely correspond to one another, we have folded all rating notches into the major rating category. For example, AA+, AA, AA-, Aal, and Aa ratings are all categorized as AA/Aa ratings.

4. The samples in the Morton, and Cluff and Farnham studies were from 1972 and 1977, respectively.

5. Ultimately, only a contemporary empirical analysis can determine the net benefit state governments receive from getting two or three ratings. Studies by Hseuh and Kidwell (1988) and Thompson and Vaz (1990) indicate that issuers are better off from getting two ratings. However, these studies used samples that are now dated and that did not cover state governments exclusively.

6. A list of the states in each category for each agency in 5 year intervals from 1970-1995 is available from the author upon request.

7. It should be noted that the trend of the diminution in credit quality shown for states rated by both Moody's and Stan- dard and Poor's in Figures la-If is substantively the same as that for states rated by Moody's or Standard and Poor's.

8. The results are derived from the Wilcoxon Signed-Rank sta- tistical test and are available from the author.

9. Dual certification connotes that the two ratings convey to the market a fundamentally different set of information. Joint certification connotes that the two ratings are deter- mined in concert, either formally or informally, and that the ratings convey substantively the same information to the market.

10. All debt figures represent state level debt only. The Con- sumer Price Index deflator with a 1987 base year was used to convert nominal (unadjusted) dollar figures to real (adjusted) dollar figures.

11. T-statistics compare the means of two time periods. For example, in the 1975 column and 1970 row in Table 4a the figure, -6.83*, indicates that the 1975 employment figure is significantly different than the 1970 figure at the .05 level. The purpose of this analysis is to explain rating changes over time so we use data only from states rated by both agencies. The same basic conclusions reported herein are drawn from an analysis of data that includes all 50 states.

References

Anderson, D., Sweeney, D., and T. Williams (1987). Statistics for Business and Economics. 3rd edition. West Publishing Company.

Campbell, T. and W. Kracaw (1980). "Information Produc- tion, Market Signaling, and the Theory of Financial Inter- mediation." Journal ofFinance 35: 863-882.

Capeci, John (1991). "Credit Risk, Credit Ratings, and Municipal Bond Yields: A Panel Study." National Tax Jour- nal44: 41-56.

Cluff, G. S. and P. G. Farnham (1984). "Standard & Poor's vs. Moody's: Which City Characteristics Influence Munici- pal Bond Ratings?" Quarterly Review of Economics and Busi- ness 24(3): 72-93.

Dickson, S. (1989). "Upgrades of Third-Quarter Ratings Out- numbered Downgradings, S & P Says." The Bond Buyer, 9 October, 2.

Fleenor, P., ed. (1995). Facts and Figures On Government Finance. 30th edition. Washington, DC, Tax Foundation.

Gasparino, C. (1996). "Wisconsin Finance Official Criticizes Moody's, Voicing Concern Over Its Credit-Rating Work." The Wall Street Journal, 27 November.

Gold, Steven, ed. (1995). The Fiscal Crisis of the States: Lessons for the Future. Washington, DC, Georgetown University Press.

Hsueh and Kidwell (1988). "Bond Ratings: Are Two Better Than One?" FinancialManagement 1 7(Spring): 46-53.

Liu, P. and A. Thakor (1984). "Interest Yields, Credit Ratings, and Economic Characteristics of State Bonds: An Empirical

Analysis." Journal of Money, Credit, and Banking 16(3): 344- 352.

Millon, M. and A. Thakor (1985). "Moral Hazard and Infor- mation Sharing: A Model of Financial Information Gather- ing Agencies." Journal ofFinance December: 1403-1422.

Moody's Investors Service (1997). "Moody's Expands Rating Scale for All Public Finance Issues." Perspective on Munici- pal Issues. New York, NY: In Moody's Investors Service, Public Finance Department, January.

Morton, T. Gregory (1975). "A Comparative Analysis of Moody's and Standard and Poor's Municipal Bond Rat- ings." Review of Business and Economic Research 11 (Winter): 74- 81.

Osteryoung, J.S. and D.R. Blevins, "State General Obligation Bond Credit Ratings." Growth and Change. July 1978.

Poterba, James (1994). "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics." Journal of Political Economy 102(4): 799.

Public Securities Association (1990). Fundamentals of Munici- pal Bonds. 4th edition. New York, NY.

Regens, James L. and Thomas P. Lauth (1992). "Buy Now, Pay Later: Trends in State Indebtedness, 1950-1989." Pub- lic Administration Review 52(2): 157-161.

Thompson, G. Rodney and Peter Vaz (1990). "Dual Bond Ratings: A Test of the Certification Function of Rating Agencies." The Financial Review 25(3): 457-472.

U.S. Department of Commerce (1975-1996). State Govern- ment Finances. Washington, DC: Bureau of the Census.




state government credit quality: down, but not out!

Documents