The Handbook of Credit Risk Management, 2nd Edition

CHAPTER 9State and Local Government Credit

STATE AND LOCAL GOVERNMENTS

Our discussion of public finance herein will be limited to the credit risk of state and local governments in the United States. To understand state and local government credit risk, one first has to understand who the obligor is and what collateralizes or secures their obligations. That sounds straightforward, but the public finance category includes many very different types of entities, not all of which are state and local governments. Generally in the United States, cities, towns, and boroughs that are incorporated places that have elected officials and the right to tax their residents are municipalities, which are local governments. Counties are local governments that are not incorporated and are subdivisions of their states. State governments are of course governments. Local agencies that are governed by state and local governments that provide services for the public good are “municipal agencies.” Agencies can be state‐level, city‐level, or multi‐jurisdictional level. These entities are all public entities. The “public entity” category extends beyond what is a municipality, and includes state and local governments, as well as their agencies.

Note that the term municipality is sometimes used to refer to the whole public finance sector, including all state and local governments, municipal agencies, and government‐related enterprises, largely because the asset class “municipal bonds” is the convenient ...