Local autonomy, bond–rating agencies and neoliberal urbanism in the United States


The influence of bond–rating agencies on local autonomy is explored in light of recent research which views autonomy not as the degree of separation from the global economy, but rather as the nature of the interaction that places have with the wider politico–economic sphere. Based on the recent experience of American cities, it appears that the activities of rating agencies influence local autonomy more so now than during the immediate postwar period for three interrelated reasons. First, the governing turn away from federally–organized Keynesianism has transferred certain responsibilities to localities that are often funded with debt. Localities are thus more reliant on capital markets and the decisions that determine their access to such markets. Second, an increased presence of institutional investors in the municipal bond market has strengthened the investment–grade threshold because such investors are legally prohibited from holding a high percentage of speculative securities. Localities with speculative–grade debt are less able to sell their bonds than before. Third, commercial banks and locally–based lenders, which used to lend more frequently to cities (based on their own market research), are less involved in municipal debt markets than before. The knowledge vacuum created by their exit has been filled by the only other reputable sources on municipal credit: bond–rating agencies.