Fairfax County’s sterling credit has been put on review for a possible downgrade by Moody’s Investors Service because of the continuing impasse between Congress and the White House over raising the debt ceiling and the Northern Virginia economy’s dependence on the federal government, county officials learned Thursday.
Fairfax County officials, whose concerns about such a possible credit downgrade have been rising steadily as the Washington deadlock drags on, reacted with surprise and annoyance when they received news Thursday afternoon that Moody’s placed under review the top credit ratings held by 177 jurisdictions, including Fairfax County. The potential downgrade involves about $69 billion in outstanding debt.
“I’m pretty disgusted that Fairfax County would end up on this list, given the fact we have been scrupulously well managed, and we have handled our debt so carefully,” Board of Supervisors chairman Sharon S. Bulova (D) said late Thursday. She said the county has maintained the highest credit rating for 36 years.
The head of the Fairfax County Chamber of Commerce also expressed alarm, noting that the political stalemate over the U.S. debt has already slowed economic activity in Northern Virginia.
Any downgrade of Fairfax County’s credit rating would raise the cost of borrowing and cause the county to re-evaluate and perhaps postpone capital spending on local roads, schools, and libraries, Bulova said.
Yet local government officials also noted that as recently as July 6, Moody’s had praised Fairfax County’s shrewd handling of its finances. The county’s economy also appears to be on the mend, with home prices rising month-over-month since the beginning of 2011, an unemployment rate of 4.3 percent, and steady job growth. County officials said 154 companies have announced plans to locate or expand their businesses in Fairfax County since 2010.
Moody’s possible credit downgrade was not a surprise. County officials have known for some time that if the U.S. government’s credit rating faltered, the downgrade could have a chain reaction on state and local goverments, and particularly on those that depend on federal spending.
“I would say they are telling it like it is,” Bulova said of the rating agency. “If the federal government can’t get its act together, it affects state governments, it affects local governments, and it affects other countries around the world.”
On Tuesday, the Board of Supervisors agreed to communicate the county’s concern to Virginia’s congressional delegation and urge them to forge a bipartisan compromise. In a written statement Thursday, she urged Congress and the White House to cease “partisan bickering” and find a compromise.
Jim Corcoran, president of the Fairfax County Chamber of Commerce, said Thursday that the impasse has already worsened the sluggish economy by introducing more uncertainty into the business climate. Executives are reluctant to move forward on business deals if they can’t reasonably predict where interest rates will be in the days and weeks ahead.
“How does a business go forward and say, ‘We’ll spend ‘x’ on a project’ when they don’t know what the end game is?” Corcoran said. He said ordinary people are also becoming exasperated.
“You’re beginning to hear the man on the street talking about it. They’re saying, ‘You need to get over yourselves and move on,’” Corcoran said.
Bulova also said the impasse will soon have a financial impact on ordinary people too, if the markets send interest rates higher. “It’s not just an arcane debate in Congress. It’s gong to affect all of our pocketbooks,” she said.
Northern Virginia would be particularly vulnerable to disruptions related to federal spending because of the high number of government contractors in the area and the many secondary contractors and vendors that rely on them. Any disruption related to federal spending would have a substantial ripple effect, he said.
Fairfax County has the highest possible bond rating for local governments from three major ratings services: Aaa from Moody’s, AAA from Standard and Poor’s, and AAA from Fitch ratings. That has saved the county $486.3 million in bond sales since 1978, Bulova said.
Bulova also said that while the cost of borrowing could go up with any change in its credit rating, Fairfax County’s ability to repay its debts would not be affected.