U.S. public finance issuers are a varied group, but the management practices of the strongest borrowers show some distinct commonalities, says a report entitled "The Top 10 Management Characteristics Of Highly Rated U.S. Public Finance Issuers," published today by Standard & Poor's Ratings Services.
In the report, Standard & Poor's notes that its view of management factors, administrative characteristics, and other structural issues facing a government entity might be an overriding factor in a rating outcome.
Standard & Poor's views management as contributing significantly to many of the individual credit ratios, which can positively affect ratings in a number of ways. On the whole, state and local governments have made many improvements to budget structure, reserve policies, and debt management during prior periods of budget stress.
"Whether these practices are developed as part of a comprehensive risk management plan or individually, they have, in our view, generally enhanced government's ability to manage through downturns and have contributed to credit stability over time" said Standard & Poor's credit analyst John Sugden. "Conversely, we believe that the lack of strong management can be a significant factor in a weak credit profile," Sugden added.
While the economy remains a key factor in assigning a rating level, Standard & Poor's view of management and the institutional framework is usually one of the deciding factors in fine-tuning the rating.
The "Top 10" list of management characteristics associated with Standard & Poor's highly rated issuers is generally applicable to state and local governments as well as to other enterprise operations of government such as water, sewer, or solid waste. The relative importance of these factors may vary from issuer to issuer.
"Proactive budget and liability planning, strong liquidity management, and the establishment of reserves are among the factors the strongest issuers share," Sugden said.