Public Policy Made by Private Enterprise: Bond Rating Agencies and Urban America

Abstract

Since World War II, and especially since the1970s, cities have increasingly relied on municipal bonds as a crucial source of income. At the same time, the bond rating agencies have exerted more influence on potential investors—a development with significant consequences for the nation’s cities. The need for elected officials to measure their actions against possible rewards and punishments imposed by the bond rating agencies allowed private businesses to shape public policies in distant places impervious to the mandates given democratically elected local governments. This paper examines the challenges faced by public officials in three cities (Philadelphia, Chicago, and Detroit) because of the power wielded by bond rating agencies.