Credit Ratings
COVID-19 Impact Risk Levels
How the COVID-19 global pandemic might impact our local governments and municipalities is essential to know. S&B's COVID-19 Impact Risk Levels will assist you in understanding your potential risk.
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S&B has defined four levels of potential short-term* risk to municipal credit quality related to the impact of COVID-19 in the U.S.: Limited, Level 1, Level 2, and Level 3. While each Risk Level indicates an increasing potential for revenue loss, the actual impact on credit quality and its duration will depend on the specific municipal bond sector, the pre-existing financial condition of the municipality, local severity of the virus, as well as the demographics and economic makeup of each municipality. Although the S&B Rating and Risk Level are provided together, the S&B Rating reflects primarily current audited annual financial statements, whereas the Risk Level reflects the potential future impact on that credit rating.

A Limited Risk level indicates that while all local governments may experience increased pandemic-related expenses and impacts on intergovernmental funding, S&B anticipates a limited net reduction in revenues based on relatively stable ad valorem taxing capacity.

A Level 1 Risk level indicates that S&B anticipates a low to moderate short-term reduction in revenues related to the widespread economic impact of the pandemic, including a reduction in employment.

A Level 2 Risk level indicates that S&B anticipates a moderate short-term reduction in revenues and/or increase in expenses due to structural changes in operations or business activity.

A Level 3 Risk indicates that S&B anticipates a significant short-term reduction in revenues as travel and demand for non-essential services are dramatically reduced.

Risk Level Municipal Bond Sectors
LIMITED most local governments, school districts, Texas Municipal Utility Districts, pledged ad valorem tax bonds, tax increment financing, bond banks, and housing authorities
LEVEL 1 Utilities, sales tax, income tax, and non-ad valorem tax revenue bonds, as well as issuers with a higher concentration of sales and income tax revenues, including state governments
LEVEL 2 hospitals, colleges and universities, community colleges, transportation, special finance authorities, and issuers dependent on tourism
LEVEL 3 airports, ports, excise tax and hospitality bonds secured by hotel, motel, or other tourist revenues, and bonds secured by nursing homes and assisted living facilities, stadiums, or other cultural institutions, including civic and convention centers

The potential resurgence of the pandemic, as well as the successful development and implementation of a vaccine, could affect the duration of the impact on municipalities. S&B believes that in the long-term, a prolonged economic decline related to the pandemic could affect property tax values and tax collections. S&B believes that Federal stimulus could play a significant role in the severity of economic decline. Also, state revenue losses, largely driven by income and sales tax, may reduce school district and local government funding on a state-by-state basis. Rising unfunded pension liabilities could pose another challenge if financial markets continue to demonstrate the same volatility experienced in 2020, and as governments push early retirement. Issuers with stronger preexisting credit quality and greater reserves headed into the pandemic will likely be more insulated from insolvency in the long-term.

*S&B defines short-term as the period through the end of the 2021 fiscal year

DISCLAIMER: The statements and information contained herein are our opinions only, and not a guarantee, and are based on public information available as of the date of any S&B Municipal Credit Rating (inclusive of S&B short term risk level related to the impact of COVID-19) only and may be based on both internal and/or external sources that S&B reasonably believes to be reliable. However, S&B cannot and does not guarantee the accuracy, timeliness or completeness of such information for any particular purpose and such information is not to be considered to be all-inclusive. This shall not be construed as an offer or as a solicitation of an offer to sell or purchase any securities that may be mentioned herein. The S&B Municipal Credit Rating (inclusive of the S&B short term risk level related to the impact of COVID-19) and S&B’s opinions expressed herein are based on information deemed current only at the date of the report only and are subject to change without notice or any further obligation on the part of S&B to update or otherwise revise the same. An S&B Rating assignment based on financial statements presented in other than Generally Accepted Accounting Principles in the United States (GAAP), including the cash basis of accounting, is not based on the full objective criteria utilized by S&B and is, therefore, limited in scope and does not contain all material information necessary to make an informed investment decision. No person should make an investment decision solely in reliance on the information contained herein. The S&B Municipal Credit Rating (inclusive of the S&B short term risk level related to the impact of COVID-19) is strictly as of the date of this report. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, COMPLETENESS, TIMELINESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE OR PURPOSE OF THIS RATING OR OTHER OPINION OR INFORMATION CONTAINED HEREIN IS GIVEN OR MADE BY S&B IN ANY FORM OR MANNER WHATSOEVER.

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