The criteria used by rating agencies to determine a city or state’s bond rating are not always transparent. However, when Moody’s issued its recent update on DC’s long-term bond-rating outlook, the investment adviser company offered a window into their thoughts on how DC can shore up its economy and finances. It’s not surprising that Moody’s hopes the city will put more money in its savings account, or fund balance.
It was a little unexpected, however, that Moody’s also noted concern about DC’s high poverty rate, and that reducing poverty could help DC’s improve its bond rating. Moody’s recognizes that poverty not only puts a strain on families and individuals ‘ but the District as a whole too. Research shows that poverty, especially deep poverty, has particularly harmful effects on young children leading to lower educational achievement and reduced earnings as adults. In the District, two-thirds of the recent increase in poverty reflects residents living in deep poverty.
In addition to lower educational outcomes and reduced future earnings, poverty is also associated with poor nutrition and health, child neglect, and increased neighborhood crime ‘ all of which cost the city more in the short-run in terms of increased health and crime costs and in the long-run with lost productivity of future workers.
While the recession has had a negative impact on both DC’s fund balance and poverty, there is currently only a plan to fix one ‘ DC’s fund balance. Plans to add more than $650 million to the fund balance have been put into law. In fact, $115 million will likely be added to the fund balance before FY 2012 is over.
But we haven’t seen a plan from elected officials to reduce poverty, even though nearly 17,500 DC residents have fallen into poverty in the last three years. One in five DC residents lives on less than $22,314 for a family of four. The poverty rate among DC children is even higher ‘ at over 30 percent ‘ meaning that nearly one on three children lives in poverty.
Moody’s understands the value of investing. They advise investors on where to put their money, and they advise governments and companies on how to remain financially healthy. Their latest outlook report for DC confirms that DC’s economic future depends on more that building up solid reserves. It also depends on investments in DC residents.
