Standard & Poor's (S&P) downgraded the United States' long−term credit rating from AAA to AA+ last month, while Somerville and Medford experienced increases in their credit ratings earlier in the year.
S&P upgraded Somerville's rating from AA to AA+ in March, Somerville Mayor Joseph Curtatone told the Daily. Medford's rating was also upgraded earlier this year from A to A+, according to Medford Mayor Michael McGlynn.
S&P independently assigns credit ratings to markets, institutions and governments based on their own research. The United States' current rating, AA+, indicates "a very strong capacity to meet financial commitments," while its previous rating, AAA, shows "extremely strong capacity," according to S&P requirements.
Before this summer, the U.S. credit rating had remained AAA for the past 70 years.
The downgrade raised concerns for investors looking to purchase bonds, as the lower rating renders the nation less creditworthy and financially stable in their eyes. Investors' beliefs regarding the federal government's ability to pay off its debt in the future will have a direct impact on the financial markets, Department of Economics Chair Enrico Spolaore said.
Somerville and Medford's ratings place them in better financial positions than ever before, hopefully attracting additional investment, Curtatone and McGlynn said.
McGlynn described Medford's A+ rating as a "strong rating for us."
At the end of the 2010 fiscal year, Somerville reported its total net assets at $141.6 million, according to a public document titled "Report on Examination of Basic Financial Statements."
"Somerville's credit rating continues to go up because of strong financial management and focus on economic development," Curtatone said.
Investment in the city will ideally allow the city to not raise local taxes, Curtatone noted.
"Our AA+ rating has the leverage and strong financial terms for our borrowing, saving the taxpayers millions of dollars," Curtatone said.
The lowered overall U.S. credit rating will not have an impact on the cities' local projects or borrowing abilities, Spolaore noted.
"It's not really something that is happening right now that is going to affect Medford or Somerville," Spolaore said.
"I'm more concerned with the officials of Washington's ability to work together and compromise to get results to move the country forward," Curtatone said.
S&P was prompted to downgrade the U.S. credit rating because of its "view on the rising public debt burden" as well as its "perception of greater policymaking uncertainty," according to an Aug. 5 S&P statement.
The United States reported a net deficit with its total liabilities exceeding total assets by $13.5 trillion, according to a report by the U.S. Government Accountability Office.
The downgrade reflected S&P's concern about the political situation in the United States rather than its financial status, according to Spolaore.
The U.S's new rating will not necessarily affect the demand for bonds, he said.
"There will not be an immediate big impact on the ability of the U.S. government to finance its debt," Spolaore said.
"We have seen it right away that you don't see a big change in the demand for treasury bonds as a consequence of this."
McGlynn is confident that the U.S. credit rating will rebound with time. "I'm sure others have reaffirmed the country's bond rating and I'm sure they'll be climbing right back up shortly," McGlynn said.
