State Credit Enhancement Programs for School Districts and Municipalities
Harold B. Burger Assistant Vice President and Research Analyst AllianceBernstein
State credit enhancement programs are designed to assist local governments with obtaining improved credit ratings where, all things equal, the natural underlying credit rating of a local government would be weaker. Although credit enhancement programs are typically structured and sponsored by state governments for their underlying governmental units, often local school districts and their GO debt, other types of enhancement programs, such as a public pension fund guarantee of another entity’s debt, exist. However, this chapter exclusively focuses on state credit enhancement programs designed for local school districts and municipalities. This chapter will provide an overview of the differences between enhancement program types; the rating agencies’ approach to assessing enhancement programs; and the advantages and disadvantages of such programs.
State credit enhancement programs exist to provide a credit substitute to an otherwise weaker underlying governmental unit when there is a need for the local unit to access the capital markets. In many cases, the enhancement program is either directly or indirectly tied to the state government’s credit quality. There are generally four types of credit enhancement programs identified by the rating agencies: state intercepts, state GO guarantees, non-GO state support, and ...