U.S. debt ceiling crisis has City of Fairfax's stellar credit rating under review

The City of Fairfax isn't immune from the ripple effect of the debt ceiling crisis going on just 18 miles away in Washington, D.C. The credit ratings agency Moody's has put the City of Fairfax along with 161 other local governments on a "review for possible downgrade due to review of U.S. Government's Aaa rating." Click here for the press release.

Fairfax City Mayor Rob Lederer and other Northern Virginia elected officials have weighed in on this and the message is this: our federal elected officials need to get their act together and find a way to avoid a U.S. debt default.

As most know, in 2010 the City received a Aaa rating ourselves from Moody's. And we received a AAA bond rating from Standard & Poor's in 2009. We are only a handful of localities our size nationally that have this excellent rating - a testament to good fiscal management by the Mayor, Council and staff over many, many years. In fact, only three other cities in the Commonwealth - Virginia Beach, Chesapeake and Alexandria - have AAA and Aaa ratings.

This stellar rating means that should the City want to borrow money, it will get the best terms available, which means low interest rates on the bonds issued and ultimately less money taxpayers have to pay in repaying the debt.

As stated in the letter signed by Mayor Lederer and other Mayors and Chairs in Northern Virginia:

Nothing has changed in terms of our local financial and debt management practices and our continued strong fiscal management and low overall debt burdens bring stability to the region. Northern Virginia is a major component of the region’s economic success story, according to a recent study by George Mason University's Center for Regional Analysis.

But the impact of this ongoing stalemate could be huge. As our transportation challenges grow and the facilities that house our firefighters, police and schoolchildren deteriorate, our plans to address these needs could be jeopardized. This crisis atmosphere raises serious concerns.

We fully understand the challenges involved in balancing revenue levels and funding essential services, since we accomplish this task every year in our localities. Our strong financial management practices have helped us manage through strong periods of growth as well as economic slowdowns while maintaining strong and stable financial profiles.

But if our rating is downgraded, the City - by no fault of our own - will have to pay more and so will taxpayers. We are currently paying the lowest rates possible for the debt we have that has gone to rennovations of schools, our new library, City Hall rennovations and a new police station. We were even able to recently refinance some of our bonds because of our new ratings and save about $200,000. That's real taxpayer money.

Still, it's very unfortunate that Congress and the President can't come to terms to end this crisis, which is already having an impact on state and local government. On that point, ratings agencies have also put Virginia's prized AAA rating under the microscope as well. That rating is sacrosanct in Virginia, having achieved it and kept it since the 1930s.

Some people ask why would the City of Fairfax and Virginia be put under this "credit watch" when we are paying our bills. The simple fact is that we live in an economy that's interconnected.

According to ratings agencies, our state and locality's "heavy exposure" to the federal government - employees, contractors, building leases, etc. - places us in a position where should the federal government default come August 2, those connected to the federal government may feel an impact since payments (such as to vendors, contractors, etc) could be delayed. That would then have an impact on everything from employment (contractors who don't get paid can't pay employees and state income tax lags) to consumer spending and the sales tax derived from it (if employees don't get checks, there's uncertainty in the economy, people and businesses may not spend as much). It's a downward cycle that could have a deep and wide impact.

In the statement from Northern Virginia's Mayors and Chairs, it's put pretty bluntly:

Moody’s decision to place our bond ratings on review for possible downgrade was made because of federal inaction, and in no way reflects the continuing strength and good fiscal management of our local communities. Yet any rating downgrade will increase the cost of borrowing for us all, forcing governments across Northern Virginia to reevaluate and perhaps curtail, capital spending. The ripple effect of this situation on our local budgets could threaten basic services, just as we are slowly emerging from the multi-year, cyclical economic downturn.

Elected officials - no matter federal, state or local - are expected to do no harm to the communities they serve. We are on a path though that is creating a recipe for economic disaster - in Northern Virginia, the United States and the world. Now is the time to take action to avoid a disaster that won't just jeopordize our credit ratings, but our entire economy.