Res 08-028
RESOLUTION NO 08-028
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF POWAY, CALIFORNIA
SUPPORTING REFORM OF THE BOND RATING SYSTEM
TO ELIMINATE DISCRIMINATION AGAINST MUNICIPAL BONDS
WHEREAS, the recent turmoil in the municipal bond markets has brought into
focus the higher standards imposed by the three major bond rating agencies in rating
municipal bonds compared to corporate bonds, mortgage-backed securities and other
debt instruments, and
WHEREAS, issuers of municipal bonds rarely default on the bonds they sell to
finance streets and roads, public buildings, bridges, flood protection and water systems,
and other critical infrastructure, yet municipal bond rating fail to reflect that fact; and
WHEREAS, despite the relative default rates shown by their own data, the rating
agencies continue to discriminate against municipal issuers, requiring public agencies to
secure expensive bond insurance in order to secure bond ratings comparable to those
of private corporations, and
WHEREAS, the rating agencies base their ratings of corporate bonds on the risk
the issuer will default. In contrast, their ratings of municipal bonds have little
relationship to the risk of default. This difference provides a substantial economic
benefit at the expense of taxpayers across the nation, and
WHEREAS, a coalition of state and local public agencies, led by California State
Treasurer Bill Lockyer, has called on the three major rating agencies to examine their
practices and treat ml1nicipal bonds on par with corporate bonds that expose investors
to the same level of risk; and
WHEREAS, the current double-standard by rating agencies 1) drains billions of
dollars from taxpayers' pockets in the form of unfairly high interest rates, 2) forces
taxpayers to pay even more money to buy bond insurance they would not have to
purchase if municipal bond ratings reflected the risk of default; 3) misleads investors by
inflating the risk of buying municipal bonds, and 4) undermines the effective functioning
of a transparent market.
NOW THEREFORE, BE IT RESOLVED that the City Council of the City of
Poway calls on the major municipal bond agencies to end the double standard in the
treatment of municipal and corporate bonds, to treat taxpayers the same as
RESOLUTION NO 08-028
Page 2
corporations and rate municipal bonds based on the risk of default; and to create a
unified, global rating approach that treats all issuers equally and better serves taxpayers
and investors.
RESOLVED FURTHER, that the City Manager is hereby directed to notify the
municipal bond rating agencies by letter of the adoption of this resolution, with a copy to
California State Treasurer Bill Lockyer, and to register the City as a member of the
coalition of public agencies supporting the nationwide campaign to reform how bond
rating agencies grade state and local bonds.
PASSED, ADOPTED, AND APRROVED by the City Council of the City of Poway
at the regular meeting this 20th day of May 2008.
ATTEST
>~JI~~~
Salam Hasenin, City Clerk
RESOLUTION NO 08-028
Page 2
STATE OF CALIFORNIA )
)SS
COUNTY OF SAN DIEGO )
I, Salam Hasenin, City Clerk of the City of Poway, do hereby certify under penalty
of perjury that the foregoing Resolution No 08-028 was duly adopted by the City
Council at a meeting of said City Council held on the 20th day of May, 2008, and that it
was so adopted by the following vote.
AYES BOYACK, HIGGINSON, REXFORD, CAFAGNA
NOES NONE
ABSENT EMERY
DISQUALIFIED' NONE
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Salam Hasenin, City Clerk
City of Poway