Credit Crisis Creeps Closer

Last week, I spoke too soon when I breathed a sigh of relief and said,

"Now that the federal government has raised the debt ceiling, the risk to Richardson is lessened. The city's Aaa credit rating appears to be safe, at least until the next crisis in Washington."

That didn't take long. Crises in Washington come fast nowadays. Moody's may have reaffirmed the US's Aaa credit rating, but Standard & Poor's went ahead and downgraded its rating of US debt from AAA to AA+.

There are legitimate reasons to question the competency of S&P, but that's not my topic today. I want to focus on the collateral damage being inflicted. After the jump, S&P's spreading damage and the risk to Richardson.

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Now Bloomberg reports:

"Standard & Poor's lowered the AAA ratings of thousands of municipal bonds tied to the federal government, including housing securities and debt backed by leases, following its Aug. 5 downgrade of the U.S. The rating company assigned AA+ scores to securities in the $2.9 trillion municipal bond market including school-construction bonds in Irving, Texas; debt backed by a federal lease in Miami; and a bond series for multifamily housing in Oceanside, California."

The City of Richardson's credit rating hasn't been affected (yet), nor the RISD's, but this man-made disaster isn't under control yet. A credit rating downgrade, if it should happen, could mean higher borrowing costs for Richardson's capital improvement projects. That could mean delayed projects or cancelled projects -- streets, parks, municipal buildings.

There's one political faction that would like to see Richardson's growth and development stopped. That's the faction that opposed Richardson's 2010 bond program. They lost that election, but they may still get their way if Washington's recklessness leads to a collapse of the financial markets. That remains a real risk that the Richardson City Council needs to have a contingency plan for. The time to prepare is now, as they are developing our own 2011-2012 city budget.

The most damnable aspect of the trouble we find ourselves in is that this is a self-inflicted political wound. As S&P explained its downgrade of US debt:

"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy."

On the bright side, the cause of our damnation carries with it the key to our salvation. Because our trouble is man-made, it means that the solution is in our hands, too. All we have to do is quit letting ideology trump prudence. Right. Like that's going to happen.