New York City should form a coalition with other major issuers to press rating agencies to grade municipal and corporate bonds on a single scale based on the likelihood of default, a city politician said on Friday.

"The power of a joint coalition and the amount of market power we could all represent I believe could push for reforms much quicker," City Council member and City Comptroller candidate Melinda Katz said. "We would jointly negotiate with the rating agencies and make sure that we are clearly representing the fact that a triple-B muni is just as good as an A-rated [corporate bond] ... Munis are taking a loss by the difference in the rates under the dual rating system."

California Treasurer Bill Lockyer and other municipal officials have long criticized the dual rating system as unfair and have called for reform. Money market funds are not allowed to hold securities with ratings below Aa/AA, even though the default risks of lower-rated corporate and municipal debt is not the same.

In October, both Moody's Investors Service and Fitch Ratings delayed the recalibration of their dual scales to a single global scale, citing the turmoil in the global credit market. Moody's declined to comment on the proposal and calls to Fitch were not returned by press time.

Speaking at the Government Finance Officers Association annual meeting in Seattle in June, Moody's managing director Gail Sussman said the agency was committed to a recalibration when the market settled.

"The migration of the municipal portfolio continues to be temporarily suspended," Moody's spokesman John Cline said in an e-mail. "Moody's intends to resume plans for the migration, but has not announced a firm date for it."

Standard & Poor's has said that it only has one scale but it upgraded thousands of credits last year following a default study.

The dual system was confusing to retail investors who might not understand the difference between the two scales, Katz said, adding that the change to a global scale should not be postponed.

"It is time for action," she said. "It's been a substantially long time since the financial system has become broken and New York City clearly has a special responsibility to be a leader in this area."

The city could join forces with other issuers such as New York's Metropolitan Transportation Authority, Massachusetts, Philadelphia, Texas, and California, she said. Katz also said that the creation of a nonprofit rating agency could take away any potential conflict of interest under the current rating system in which borrowers pay for their ratings.

The city comptroller's office is involved on city debt sales, which totaled $10.75 billion of new money and refunding on its different credits last year, according to Thomson Reuters. The comptroller also oversees the city's five pension funds, which are valued at about $82 billion, and issues reports and audits on the city and city agencies.

Katz is among four City Council members who are running to replace Comptroller William Thompson Jr., who is stepping down to run for mayor against incumbent Michael Bloomberg.

With the Democratic primary for city comptroller a month away, more than half of city voters - 55% - said they were undecided in a Quinnipiac University poll last week.

Among the remaining 45%, John Liu leads with 17%, followed by Katz with 10%, David Yassky with 8%, and David Weprin with 5%.

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