For cities, high poverty doesn’t necessarily mean poor credit ratings

Having a high poverty rate doesn’t necessarily mean a city can’t have a strong credit rating.

Of the 50 highest-poverty cities with populations over 100,000, 27 have strong credit ratings, according to a new report from the credit-rating agency Moody’s. None have the gold-standard Aaa rating, but all 27 fall within the Aa category.

While high poverty may suggest a weak economic and financial climate, there are often other factors to combat those drags. That’s not to say there’s no relationship between high poverty and credit ratings: They tend to have lower ratings in comparison to all large cities, as the chart below shows.


(Moody’s)

On one hand, high poverty is correlated with low median incomes, high unemployment, depressed home values, weak tax collections and a heavy demand for government services, the report notes.

But big cities being what they are, they are often economic centers in their regions and the associated retail and employment benefits can counterbalance the effects of high poverty rates. They can also benefit from the presence of a big institution, be it government, military, health care or educational. And that last one is of note, as the presence of a university can skew the poverty rate lower thanks to students who tend to have low incomes but may have support from their parents — though that effect is lessened in cities with populations over 500,000.


(Moody’s)

 

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Sean Sullivan · August 27, 2014

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