March 17, 2010
Washington, DC Today, Senior House Financial Services Committee members Reps. Michael Capuano (D-MA) and Emanuel Cleaver (D-MO) made the following statements after Moody's Investor Service yesterday changed the way municipal bonds are rated. Previously, Moody's and others rated municipal securities, which historically have had extremely low default rates, on a different scale. As a result, this had the effect of driving up the costs to cities and states. Financial Services Committee Chairman Barney Frank and Reps. Capuano and Cleaver pushed for legislation to end this unfair treatment and to ensure that municipal government bonds are rated based on their ability to repay the debt and their historical default. This legislation was included in the comprehensive Wall Street Reform and Consumer Protection Act that the House passed in December. Senator Dodd also included similar language in the bill he unveiled this week. Capuano and Cleaver are both former mayors, and they have direct knowledge of this unfair treatment. Cleaver and Capuano also called on other rating agencies to eliminate the dual rating system.
"For years municipalities across the country have been forced to pay billions of taxpayer dollars to insure bonds that have nearly no chance of defaulting. I'm pleased to see the industry step up to the plate and make these needed changes to the way they rate cities," stated Congressman Mike Capuano.
"In the last 50 years, only one city has ever defaulted on a municipal bond. These general obligation bonds not only carry the full faith and credit of the municipality and its taxpayers, they are used to improve our communities investing in schools, infrastructure and public works. I am pleased to see that Moody's has recognized these are solid investments, backed by the good people in cities and towns across the country who are 99.99 percent responsible in their repayment. I urge the other credit rating agencies to change their unfair credit rating structure which has cost taxpayers millions if not billions," said Congressman Emanuel Cleaver, II.
Contact: Alison M. Mills 617-621-6208 (Capuano)
Steve Adamske (202) 225-7141 (House Financial Services Committee)
Elizabeth Esfahani (202) 226-3314 (House Financial Services Committee)