Credit rating agencies need reform

Sen. Bob Bennett and the Banking Committee he serves on are looking at every aspect of the financial system, including the role of "credit rating agencies" in our economy. While this part of the reform package doesn't dominate the headlines, Utah's taxpayers should understand how these agencies can have a positive impact on our local economy and our quality of life.

For over a century, investors have used credit rating symbols, from AAA to D, to help them gauge the risk and investment potential of the countless government bonds issued each year in the United States. These ratings help local governments raise money directly from the capital markets instead of taking a loan from a bank. These bonds are then sold to private investors, who provide the cash to build schools, roads and community facilities.

Locally, bonds have helped Utah's municipalities and institutions break ground on a number of important infrastructure projects and save taxpayers money.

Take the Utah Transit Authority, for example. Without a credit rating from a credit rating agency, it would have likely been more difficult to obtain the $261 million in bonds that UTA just issued to fund the expansion of light rail, station repairs and security upgrades.

The Central Weber Sewer District in Ogden recently issued $51 million in bonds to help finance the district's treatment plant expansion and upgrade. In addition, West Valley City's bond rating was recently upgraded, and it was subsequently able to refinance its fitness center bonds at a lower interest rate.

The ability of a city or municipality to receive a nationally recognized rating for a bond helps expand its access to capital. That directly impacts your pocketbook. Without private capital, a city's only options to fund projects are to either go to the banks for a loan with interest that must be paid through tax revenues, or to impose higher direct taxes.

With that in mind, Congress needs to balance over-regulating the raters with maintaining a status quo that even the rating agencies see as unsustainable.

There has to be greater accountability for credit rating agencies, but Congress has to avoid opening a floodgate of frivolous lawsuits. Financial services providers are already subject to liability standards under federal securities law and should remain so.