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Current issues <br />in Government F'jnance <br /> <br /> I <br /> I <br /> I <br /> I <br /> I <br /> I <br /> I <br /> I <br />I <br />I <br />I <br /> <br /> Can You improve YQur Bond Rating? <br /> A slale or local 9overnmen!'s bond ral. mg is one o1. the mosl <br /> irnpodanl faclors ~nvestors consider when evatualing a bond <br /> ,ssuance "[ne spread belween mlerest rates on municipal bonds <br /> fa!ed "AA" and lnose raled "A" has increased hem a spread ot <br /> 23 basts petals ,n 1979. lo 38 basis poinls m 1980. 1o 42 basis <br /> pom~s m 198,1. to 73 oasis points so far in 1982 TheCetore. a <br /> 9overnmenl's bond ral~ng may have a signi1.icanl impacl on <br /> amount ol interest the 9overnmenl has to pay to borrow <br /> D~scussions ot the importance of a rahncj, the costs o1. bond <br /> sales and the effecl o1' mumcipal bond insurance are high- <br /> hghled <br /> G~ven lhe ~mporlance el a bond raling to lhe cosl el debl. lhe <br /> queslion of how a mumcipalHy can improve its ra'un~ arises. <br /> Slandard &PooFs Corporation. one el the nalion'$ henri rahng <br /> agencies, suggests lhal. in lheir eflorls to secure a hi[lher <br /> cJovemmen! officials 1.ocus on Ihose elements '[hat ape mostly <br /> wilhin lheir di[ec:l conlrol, such as planning and budgeling. Fo[ <br /> example, lh~ou!~h c:a~lul planmn~ and zomng a local <br /> ment may be able to encourage a balanced economic environ- <br /> menl which is ~ondueive '[o po$ihve 1.eelings to[ investmenl <br /> wilhin lhe oommundy. <br /> Anolhe[ method fha! micah! ~mprove a bond rating is lhe pul- ' <br />chase el municipal bond insurance. This ,nsurance lypioally <br />gua[anlees lhe Inlere$! and principal el lhe issue and may <br />lhe bond ralin[l Io "/~A.'~ Appro×imalel¥ 10 per~enl ot '[he <br />municipal Ion~-le~m markel in 1982 i~ covered by munioipal <br />bond Insurance. In some instances, mufllC:~pal bond ~nsu[ance <br />may ~mprove mleresl tales by 100-12,5 basis points (the insur- <br />ance lee is often one-tmrd of tins amount) <br /> Other acttons Inal may help improve a bond rating ~ncluoe <br />1) ~mplemenhng pohcles ~n a professional manner [hnanclal <br />repomnD, d~sclosure, etc.). 2) regularly informing ra~mg agen- <br />cies ot any chanDes or possible problems. 3) using all avadable <br />JntormallOn sources, such as dtscusslons wllh unoelwrllers and <br />gu,dance $fleels provided by It~e rahng agenc,es. 4) mvmng <br />lhe raltng agencies Io visd wt~en s~gn~hcanl changes lake place <br />~n th~ community, and 5) developm[~ Iniormallon in add,hen to <br />Ifa! provided on tmancial statements, e.g. ~nlormal,on aboul <br />the local economy, budget, etc <br /> <br /> <br />