Some Credit Factors Affecting the Quality of Local Municipal Bonds

• GDP Growth Rate Over the Past Three, Five, and Ten Years Contraction in the GDP growth rate of the economy tend to effect municipal tax collections; thereby, reducing the credit quality of the outstanding debt of that locality.
• The Percentage Concentration in the Tax Burden of the Top Ten Property Tax Payers Lower concentration rates improve the credit quality of the outstanding municipal debt of that locality.
• Economic Diversification Excessive concentration of the largest employers tend to increase the credit risk of the outstanding municipal debt in that locality. When companies layoff employees, and new jobs being created are not enough to offset lost tax revenues, debt service coverage tends to decline.
• Business Cycle Savings Economic cycles tend to lead to unexpected, and sometimes abrupt cutbacks in specific industries such as military and home construction. This in turn, also effects the credit quality of an issuer.
• Demographic Changes Changes in the education, age, and personal income per capita of a municipality can either increase or decrease tax collections; thereby, affecting the credit quality of an issuer.

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