Moody's to Change How It Rates Munis

Moody's Investors Service on Thursday proposed to give municipal debt two sets of ratings: on the municipal and corporate scales. The changes would be effective in May.

Congressional lawmakers and state officials and contend that the three largest rating agencies - Standard & Poor's, Moody's and Fitch Ratings - have saddled taxpayers with billions in added interest and bond insurance charges by holding municipalities to higher standards than companies.

The change by Moody's "would be a welcome first step to treating taxpayers more fairly in the rating of municipal bonds," said Tom Dresslar, a spokesman for California Treasurer Bill Lockyer, a vocal critic of the credit rating process. But Dresslar saw potential for confusion if investors see two varieties of ratings.

Last week, the House Financial Services Committee held a hearing on bond ratings, prompted by a campaign led by Lockyer.

Critics of the current system argue that municipal governments have not suffered the same troubles as mortgage-related investments that were assigned the highest possible rating of triple-A. Municipal debt, they argue, has a stronger track record, with few defaults.

Sen. Charles Schumer, D-NY., called Moody's decision important and timely, given the squeeze on local tax bases. "Local governments can't afford to be penalized by a credit rating system that is separate and unequal," he said in an e-mailed statement.

Naomi Richman, chief credit officer in Moody's global public project and infrastructure group, said Moody's has long been willing to entertain changes. "We think that it's the right time, based on the sentiment that we are hearing in the market," she said.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed