Monthly Archive: June 2015

A Traditional 1920s Bungalow with a Boxy Modern Extension

Exterior facade of a traditional bungalow with modern addition

From the street, the house’s decorative facade reveals nothing of the dramatic contemporary extension at the back. But architect Hannah Tribe says its two faces have more in common than a first glance reveals. Its basic forms were delineated in sharp black paint that highlights their geometry. She calls the effect “suburban uncanny”—“clean, blunt modernism that is slightly odd and familiar at the same time.”


Like many families looking to renovate, Tribe Studio’s latest clients wanted more space, better light, and a stronger connection to the outdoors. Architect Hannah Tribe delivered with an unapologetically bold design that smartly marries old and new.

On a Busy Street in Melbourne, a Brick Home Fits Three Courtyard Retreats

Bridge House 2 brick facade street

The location, which is hemmed in by buildings on three sides and faces a heavily-trafficked road and tram line to the east, presented a challenge for architect Delia Teschendorff, who was tasked with carving out a family sanctuary for a woman and her two daughters. The handmade brick exterior, which the client requested, lets the new home slip into the neighborhood’s semi-industrial character.

Neo-Romantic Art Gala raises £1.2m for NSPCC

Katherine Houston

Last night £1.2m was raised for the National Society for the Prevention of Cruelty to Children (NSPCC) at the much-anticipated Neo-Romantic Art Gala at Masterpiece London.

Deemed as one of the most glamorous charity events of the year, the Art Gala is recognised as the charity’s single biggest fundraiser where star figures from the fashion and art industries unite and raise money for abused children.

Nestled under an enchanting forest of tree canopies and hanging lanterns designed by creative director Francis Sultana and Nikki Tibbles of Wild At Heart, sat guests at tables adorned with dark red flowers, bronze and silver metallic vases and cut glass crystal hurricane lamps.


Francis Sultana at NSPCC Art Gala

Sir Michael Caine, Patrick Cox, David Furnish, Toni Garrn, Naomie Harris, Eva Herzigova, Giles Deacon and Roland Mouret were just some of the guests attending art gala, hosted by Claudia Winkleman and Mariella Frostrup.


Architect Zaha Hadid at The Neo-Romantic Art Gala in aid of the NSPCC

Photographer Alistair Morrison, recognised for his famous ‘Actor’s Last Supper’, recreated the original (featuring Robert Powell) with key figures and many of the leading supporters of NSPCC 2015 Zaha Hadid, Francis Sultana, himself, Nazy Vassegh CEO of Masterpiece and the magician Dynamo who performed along with Emilie Sande. One of the key auction items that had guests showing their competitive side was the chance to have Morrison take their photo, remaking the iconic image.


Alistair Morrison Actor’s Last Supper with Julie Walters, Robert Powell, Colin Firth, Sir Michael Gambon and more

Other items included in the live auction featured pieces donated by modern artists. These included works from Mat Collishaw, Antony Gormley and Edward Ruscha. The opportunity to be photographed by world-renowned fashion photographer Paolo Roversi, who has worked for Marie Claire, Elle and the like, was also up for bidding.

NSPCC chief executive Peter Wanless said:

‘Thanks to the generosity of our guests, we’ve raised £1.2m – a fantastic result which will enable us to continue our work with children affected by sexual abuse, helping them take their first steps on the road to recovery.’


NSPCC chief executive Peter Wanless and photographer Alistair Morrison at the NSPCC Neo-Romantic Art Gala

The fundraiser continues to aid the NSPCC to support children and help them work through their recovery from being affected by sexual abuse.


3 Things Cities and HUD Can Do to Stop Gentrification That Segregates

Redeveloping Shaw/U Street neighborhood in Washington, D.C. (Photo by Derek Hyra)

For more than five years, I have conducted fieldwork in Washington, D.C.’s redeveloping Shaw/U Street neighborhood. In the last decade, the community has become incredibly diverse both racially and economically. However, Shaw’s subsidized housing residents rarely interact with the community’s more affluent newcomers. Moreover, longtime residents are seeing virtually all of their political power transferring to people who are new to the neighborhood.

Although D.C. Mayor Muriel Bowser and the U.S. Department of Housing and Urban Development (HUD) Secretary Julian Castro recently showcased the Shaw community as evidence of a successful mixed-income neighborhood — thanks in part to its viable affordable housing stock — they overlooked how such efforts have failed to build a fully cohesive community. The wheels of social integration must be more thoroughly greased to achieve better harmony and equity across traditional race and class divides.

American cities, and their communities, have become more racially diverse in the last 10 years. Some scholars, including Harvard University’s economist Edward Glaeser, argue that gentrification is one of the leading factors driving desegregation of U.S. cities.

Derek Hyra

I see what I call “diversity segregation” as a central challenge in burgeoning mixed-income, mixed-race neighborhoods. In diversity segregation, racially and economically disparate people live next to each other, but not alongside each other. So-called “diverse” communities often remain internally segregated because meaningful interactions across income and class have failed to materialize. As long as such divides exist, the benefits of mixed-income communities won’t be equitably felt.

Political and economic exclusion within mixed-income, mixed-race areas is affecting communities like Shaw in profound ways. For example, longtime Shaw residents who remain amid the gentrification have experienced political and cultural displacement as more affluent newcomers take over civic associations and institutional leadership positions. With this power, newcomers are able to push their community improvement priorities, which sometimes differ from those of long-term residents. Such power shifts often lead to resentment. With businesses catering to the more affluent, longtime residents can be made to feel unwelcomed in their own community. Some long-term residents report feeling like strangers in their own neighborhood, making it more likely that, regardless of housing pressures, they will move elsewhere.

City and federal officials must go beyond affordable housing efforts and stimulate meaningful social interactions among new and long-term residents to weave a new social fabric of integration in these vibrant, transitioning neighborhoods. We need policies that help bring residents of mixed-income, mixed-race communities together across racial, ethnic and income lines. Several steps can ensure the success and sustainability of these diverse urban neighborhoods.

First, neutral “third spaces,” such as libraries, community centers, schools, restaurants and other gathering places, that represent diverse neighborhood interests and preferences should be created with the goal of facilitating social interactions across race and class.

Second, although funding has been recently cut for HUD’s Community Development Block Grant and Home Programs, a proportion of the remaining funds should be earmarked for local bridging organizations with social programming that connects diverse populations.

Lastly, HUD and the Department of the Treasury should mandate future mixed-income developments, such as ones supported by the Low-Income Housing Tax Credit, have low-income representation on resident governing councils.

Fostering micro-level interaction and political equity can help low- and moderate-income residents benefit from the new urban renewal sweeping through several neighborhoods across the country.

Charlotte Streetcar Plans Get $1.5 Million Boost From Knight

The Gold Line streetcar will soon join Charlotte’s public transit mix, which already includes the light-rail Blue Line. (Photo by Justin Ruckman)

Last week, Charlotte’s City Council OK’d $7.7 million for streetcar expansion work. The first 1.5-mile stretch of the new CityLynx Gold Line is supposed to open next month, and the eventual goal for the system is 10 miles.

To help boost the chances that the streetcar will be linked to successful economic development, today the John S. and James L. Knight Foundation announced that it is investing $1.5 million to support a business improvement initiative along the Gold Line corridor.

“The Gold Line streetcar will create a physical link between Charlotte’s diverse neighborhoods and the city center. The business improvement initiative can leverage this power to connect to make Charlotte more successful,” said Susan Patterson, Charlotte’s program director of the Knight Foundation, in a press release. “By igniting small businesses and diverse ideas it will help ignite economic growth in the corridor, create spaces where diverse groups people can come together and encourage young talent to live and stay in the city.” (Next City has received funding support from Knight.)

The Knight money will help with implementing ideas already outlined in Charlotte’s Center City 2020 Vision Plan and the Urban Land Institute’s Corridor report.

Charlotte isn’t the only city betting on a streetcar to help with economic development. Last month, Next City contributor Sandy Smith reported in “Will Kansas City’s Streetcar Be a Connector or a Divider?” that while a forthcoming line has already attracted millions in investment, many in K.C.‘s East Side neighborhood, where blight and poverty are persistent, thought that “the proposal delivered too little benefit to the East Side for the taxes involved.”

Similarly in Atlanta, many were unhappy at the building of a 2.7-mile, $98 million streetcar line, saying that it wasn’t practical. Supporters of that streetcar, which opened last December, say it’s less about transportation and more about community development.

Many see streetcars as a sign of gentrification, and worry that their introduction will soon mean displacement for low-income residents. But Charlotte Mayor Dan Clodfelter seems optimistic, and agrees that the streetcar isn’t really just about transportation.

“The streetcar will shorten the real and perceived distance between Johnson C. Smith University and Uptown,” said Clodfelter. “We believe these investments, market conditions and the streetcar strengthen and attract additional investment. The time to activate plans for the area is now.”

To-Dos: Your July Home Checklist (9 photos)

With Independence Day kicking off the month here in the States, kids in the throes of school break and the days (and evenings) luxuriously long, July is a month to celebrate summer in all its glory. So make a summer bucket list, swing in a hammock, invite some friends over and stay cool — these to-dos…

New Yorkers Get Historic Rent Freeze

A Rent Guidelines Board meeting in early June (AP Photo/Seth Wenig)

“A normal market of free bargaining between landlord and tenant” is probably the last phrase anybody would use to describe New York City’s red-hot rental market. The city has one of the highest rent burdens in the nation, and on top of base rent, many landlords try to extract even more from tenants in the form of broker fees, vacancy bonuses, and taxes on amenities like air conditioning units and washing machines. While speaking about the city’s housing issues at a Rent Guidelines Board meeting last night, Chair Rachel Godsil held up the “normal market of free bargaining” as an ideal, not a status quo.

And then New York City’s Rent Guidelines Board did something it had never done in its 46-year history: It granted a rent freeze to more than a million New Yorkers.

The rent freeze, which passed in a 7-2 vote, is a major victory for New York’s tenant advocates. New York’s rent regulations are famously complex, and overall they cover about a million apartments and 2.5 million tenants, 45 percent of the city’s rental housing stock. If a building has six or more units and was built before 1974, there’s a good chance it’s rent-stabilized, which means landlords must allow tenants to renew their leases and can only raise the rent by a set percentage every year. The catch: Albany is responsible for crafting (and renewing) these regulations, essentially leaving local government powerless to set its own rent laws.

The Rent Guidelines Board, which sets annual rent hikes for rent-stabilized apartments, is one of the few leverage points the city does have. Coming off of last year’s RGB decision, which allowed 1 percent increases for one-year leases and 2.75 percent increases for two-year leases, tenant advocates demanded something unprecedented: a rent rollback. They didn’t get it — RGB member Sheila Garcia flatly admitted that they didn’t have the votes — but a freeze on one-year leases and a 2 percent increase for two-year leases still represents a significant victory.

This wasn’t the first time tenant groups pushed for a rent freeze, but for several reasons, it was the first time they succeeded. First, all nine members of the RGB now owe their appointment (or reappointment) to Mayor Bill de Blasio. Last year’s board included several business-friendly holdovers from the Bloomberg administration, but they have since departed. Second, the RGB’s annual research on cost of living and housing expenses showed that landlord operating costs rose 0.5 percent during the last year, an unusually low increase due largely to the low cost of heating oil. Whether or not the rent increase stays intact in years to come, landlords have had a very good year—and that surely strengthened the tenants’ case.

As a result, landlord advocates basically knew in advance that they were going to lose. Jack Freund of the Rent Stabilization Association, the trade group for the city’s landlords, told me, “There is no best-case scenario.” He predicted a rent freeze “would be a disaster for the city’s housing stock, a disaster for Mayor de Blasio’s housing plan, and just a very ill-conceived notion. … If that’s what [the] board wants, that’s what they’re going to get.”

When Sara Williams Willard, one of the RGB members who represents landlords, had her turn to speak, she was almost drowned out by boos from those in attendance. Willard said of the rent freeze, “This is myopic, it’s biased, and it’s selective listening. … I vote absolutely a resounding ‘no.’” But ultimately only Williams Willard and Scott Walsh, the RGB’s other landlord representative, cast dissenting votes.

Throughout the evening, tenant activists in the crowd were consistently louder and more upbeat. Even before the vote took place, chants in English and Spanish filled the hall and the surrounding streets. One chant, “Cuomo betrayed us! The RGB can save us!” displayed palpable anger at the Governor who many activists believe sold out tenants last week by waiting to pass a new package of rent regulations until after the old ones expired.

After the vote, tenants were measured in their optimism. Garcia, the RGB member who introduced the rent-freeze proposal, told me she was “hanging in there” after the vote, disappointed she hadn’t been able to secure a rollback. Thomas Williams, a rent-stabilized tenant from Brooklyn’s Ditmas Park and member of the Flatbush Tenant Coalition, said that he signed a two-year lease last year, and as a result, “I’m happy for people that got it, but for myself, it does me no good.” He also said that almost everyone in his neighborhood has been the victim of aggressive tactics by landlords. Being pressured to take a buyout and move to a smaller apartment, having necessary repairs go undone for months, and getting dragged into housing court on false charges are all par for the course, Williams told me.

The leaders of the city’s affordable housing advocacy groups were happy to portray the victory as a sign of things to come. Citing the opening provided by a progressive mayor and a skyrocketing cost of living for the average New Yorker, Jonathan Furlong of the Association for Neighborhood Housing and Development said tenants would be more aggressive than ever in defending their rights.

“There is momentum going in that direction,” he said. “This is a win for tenants given the disastrous climate in Albany.” Affordable housing activists and de Blasio haven’t always seen eye to eye, especially when it comes to the Mayor’s proposed rezonings around the city. But this is one area where he can brag that he promised — and delivered.

Shop Houzz: Mysterious Ocean (65 photos)

Before humans set out to explore space, the vast oceans that cover 70 percent of the planet were the focus of curiosity and exploration. From mythical mermaids and krakens to real-life giant squids and freaky fish, all sorts of ocean oddities exist tha…

Could Better Transportation Planning Have Saved Baltimore’s Red Line?

Maryland Gov. Larry Hogan last week held a news conference to discuss the state’s transportation infrastructure. (AP Photo/Patrick Semansky)

Right now, civic and business leaders in Baltimore are seeing red.

Just about everyone there, including Mayor Stephanie Rawlings-Blake, Baltimore County Executive Kevin Kamenetz, the Greater Baltimore Committee and the editorial board of the Baltimore Sun is furious at Maryland Gov. Larry Hogan for pulling the plug on the Red Line, a 14.1-mile, $2.9 billion east-west light-rail line that has been in the works since 2002.

All of the people and groups listed above blasted the Governor for throwing away $900 million in federal funds that were certain to go to the project along with tens of millions the state has already spent on planning the line. They also criticized him for taking off the table a transit route that would have brought economic development, jobs and improved job access to impoverished West Baltimore.

By contrast, similar arguments helped sway both Hogan and his transportation secretary, Pete K. Rahn, to press on with the Purple Line, an east-west light-rail line serving Montgomery and Prince George’s counties outside Washington. The only change in that project will be a steep cut in the state’s contribution to its projected $2.45 billion price tag, a figure Hogan expects to be trimmed. The state will contribute $168 million to the Purple Line’s cost, down from nearly $700 million, with Montgomery and Prince George’s expected to make up the difference.

Keeping a campaign promise, Hogan is shifting the money the state will not spend on the two rail lines to highway construction and maintenance: Where Hogan’s predecessor, Martin O’Malley, allocated 45 percent of the state’s transportation budget to roads, Hogan will devote 57 percent to roads. (O’Malley and the Baltimore officials are Democrats; Hogan is a Republican.)

In its editorial criticizing the decision, the Sun went so far as to suggest Hogan was waging a “war on Baltimore” when the Red Line decision is combined with cuts in state aid to Baltimore City schools. The Governor’s release of a transportation map touting “infrastructure improvements to every single county in Maryland” that had a hole where Baltimore City should be didn’t help matters any either. (Baltimore City is independent of any county in Maryland.)

The difference between a yes for the Purple Line and a no for the Red Line hinged on a subway tunnel included in the latter project. Included to improve running time through downtown Baltimore, the tunnel accounted for nearly half the project’s total cost: $1.5 billion, according to figures published in a Baltimore Brew article agreeing with the governor’s decision.

Something other than cost, however, may have contributed to the Red Line’s demise, and the Sun’s news report on the decision provides a hint.

The article notes that, “Baltimore has long been handicapped by a transit system that many residents regard as second-rate — with a subway system consisting of a single line and a north-south light-rail line that slows to a crawl as it makes its way through downtown on Howard Street.”

Both the subway and the light-rail line are the products of earlier eras of federal transit construction assistance, and they betray a lack of comprehensive thought or planning for mass transit in Maryland’s principal city.

Where its Northeast Corridor rivals all produced comprehensive, citywide or regionwide plans for mass transit service and expansion during the 20th century, there appears to be no such evidence of similar planning in Baltimore. The subway was envisioned as a starter line for what would become a network of lines at a time when the feds were supporting the construction of “heavy rail” systems in Washington, the San Francisco Bay area and Atlanta, but while Baltimore sought and got assistance for its first subway line, there was no attempt to secure a funding commitment for a metropolitan-wide system along the lines of BART, MARTA or the Washington Metro.

Between that first line and whatever might follow, thinking at the federal level changed. What changed it was the success of San Diego’s Tijuana Trolley light-rail line from downtown to the Mexican border. As the light-rail line proved extremely cost-effective, the feds shifted their funding emphasis to light-rail projects. It was during this period that Baltimore pursued and got funding for its Central Light Rail Line, which has no direct connection to the subway. Its slow crawl through downtown replicates the troubles that led Boston to construct the nation’s first subway in 1895 and Pittsburgh to move its trolleys underground in its downtown around the time the Central Light Rail Line opened.

The lesson of the first light-rail line led Baltimore officials to include the subway section in the second. Its route, however, closely parallels that of the Metro subway extension eastward from the Inner Harbor. The Federal Transit Administration did find this line met its cost-effectiveness criteria, but critics argued that better transit service could be had at less cost, an argument Hogan bought.

Should Baltimore officials decide to try again for east-west rapid transit, it’s quite possible that what would get built is bus rapid transit, the current flavor of the month in mass transit. And for it to provide effective service through downtown, it would likely have to be routed to the north edge of downtown along a major cross street such as North Avenue.

Might Baltimore have gotten more and better transit if its electeds had thought comprehensively back when the idea to build the Baltimore Metro first surfaced? It’s hard to say, for another factor that makes transit planning in Baltimore different from that in the other big Northeast cities is that the State of Maryland runs the mass transit system directly. But it does suggest that all involved in improving the quality of transit in Baltimore, from Gov. Hogan on down to the residents of the West Side, should get together in a room and consider the big picture instead of taking the piecemeal approach.

9 New Ways With Red, White and Blue (9 photos)

Sure, red, white and blue are striking on Old Glory, but it’s not a common color scheme for homes. That isn’t to say it can’t work. The trick to making it look fresh and modern is to play around with the red and blue. With just a slight adjustment in hue, tint, tone or shade you can create a look that…

Take Refuge in an Iced Tea Garden (11 photos)

As it gets warmer, shaded garden nooks become magnets for our attention. We all enjoy a cold beverage in our favorite outdoor hangout spot, but wouldn’t it be fun to not just enjoy an icy drink in the shade, but to harvest some of the ingredients fresh from the garden? Welcome to the iced tea garden…

UCLA Professor Wants to Make Sure the Smartphone Doesn’t Kill the City

Architect Roger Sherman envisions a crowdsourced building of a giant structure in the Westwood neighborhood of L.A. (Credit: Roger Sherman)

Victor Hugo said, “The book will kill the building.” Roger Sherman, architect and co-director of UCLA’s cityLAB, wants to ensure the smartphone doesn’t kill the city.

“It will rob the city of its signage and its content,” Sherman says of the seemingly ubiquitous communications device, citing the portrayal of an eerily blank city in the movie Her as an accurate vision of the future. “It feels like a strange float-to-relax immersion tank.” Sherman says, “It’s frictionless, nobody bumps into each other.”

In other words, if everyone prefers to connect via iPhone, our public spaces could be rendered obsolete simply because they can’t be everything to everyone. As an analogy, Sherman points to the transition from TV’s old, three network channels to Internet TV’s programming specialization.

“There’s no one huge audience sitting out there,” he says. “The population has fragmented into increasingly large numbers of individual subcultures. So how can you possibly conceive of a civic space that’s going to attract as much of an audience? Look at NBC’s ratings.”

To preserve the physical togetherness critical to community-driven cities, Sherman envisions using a combination of smartphones, crowdsourcing and the spirit of wonderment.

Inspired by the smartphone’s unique ability to both “summon and broadcast collective action,” Sherman is asking, “How can we make smartphone technology as a crowdsourcing, city-building tool? How can we use it to re-enrich the city?”

The smartphone’s impact on urban life has thus far been superficial — mostly matters of convenience. But Sherman sees a potential crux of smartphones and cities far beyond convenience. He calls his strategy the “feat,” and it may just represent the future tool for preserving civitas in an age of social hyper-fragmentation.

To understand the feat, one must understand another technology-related urban shift Sherman observes: “Instantaneousness trumps permanence. Spectacle trumps place. Staging trumps accommodation.”

The “Event” has replaced the “Monument.” Where we once built spaces meant to support one purpose forever, like libraries and racetracks, we now close down highways for bike races and build temporary library-towers in parks. We build entire cities in the desert for a week. Structure has become secondary to experience. And it makes sense — when social interactions bubble up from anywhere and an entire city is accessible in your pocket, spaces become more dynamic and thus secondarily significant to the happenings inside of them. A feat is a type of event that promotes cooperative, crowdsourced city building.

Sherman insists that for a feat to transpire, there must be a Trojan Horse, a stone for the stone soup, even a bit of conceit to attract people. “It’s the opposite of the Field of Dreams model,” Sherman explains, “It’s not ‘build it and they will come. It’s come and they will build it.” But a feat is not a hoax, because it categorically becomes fulfilled.

The elements of a feat include a challenge requiring collective effort; a “cunningly staged” solution; participation for its own sake; immersiveness that precludes reproducibility in photographs; and wonderment that procures incredulity. The last ingredient is what Sherman calls “gawkability.” Something that’s “gawkable” has the quality of a monument (think Chicago’s Bean) that compels people to pose with and bear witness to it; you could also call this element “Instagramability.”

If you’re still not sure you’ve grasped exactly what a feat is, you might be trying too hard. It’s just something synergetic and its elements alone are abstract. But more or less, it’s something magnificent that happens that a bunch of participants collectively achieve for the sake of being there when it happened. “This goes beyond the selfie,” Sherman says. “It’s having to meet people and work with people you didn’t know before to achieve something awesome that you can’t achieve yourself.”

Sherman has designed a yet-to-be-realized feat for L.A.: People register ahead of time for a mysterious six-week festival that will occur in Westwood. The day it starts, a citywide scavenger hunt begins for 72 giant, yellow, inflatable puzzle pieces. When someone finds a piece, they will tweet its location, signaling to an actuator that will instantly inflate the piece. Then, as people transport the pieces on flatbeds of trucks or strapped to the tops of cars, they generate buzz through the city.

Westwood has a reputation as a fragmented, contentious neighborhood and Sherman intends the feat to foster interaction and cooperation. In two-week increments, the festival will involve three “challenges” to build giant structures with the puzzle pieces. Teams will be led by local businesses, fraternities and sororities, nonprofits, and other community organizations that otherwise act as community silos. Nobody knows what the structures will turn out to look like, and the teams must work together to complete the challenges. The pieces will play songs triggered by certain tweets, and participants will join pieces by meeting other participants whose pieces play the same songs. The songs change for every challenge, continuously mixing the pot of participants and demanding more coordination. “That’s the Trojan Horse part,” Sherman says, “They’re having fun but there’s actually a lesson.”

Your Roof Can Generate Electricity With These Glass Tiles

A Swedish company SolTech Energy offers solutions for solar power, has developed a incomparable glass tile solar energy solution that is in use as an electricity system. SolTech has solar energy solutions that are proper for every types of property. Hotels, farmers, multi-occupancy dwellings, hospitals, schools, house and summer home proprietors are investing in solutions that […]

The post Your Roof Can Generate Electricity With These Glass Tiles appeared first on iCreatived.

A Quick Guide to What Moody’s Ratings Mean for City Governments

Chicago Mayor Rahm Emanuel is contending with a ratings downgrade from Moody’s. (AP Photo/Charles Rex Arbogast).

In May, Moody’s Investor Service made headlines when it downgraded Chicago’s debt rating to so-called junk status, dropping the city from level Baa2 to Ba1. In fact, the number of local governments that have been rated in what is referred to as speculative grade (here’s a primer on the rating system) has doubled over the past four years.

I spoke to Moody’s vice president and senior credit officer Al Medioli and asked him to give a context to this increase. He contends that this is an isolated trend: speculative grade cities, counties, school districts and special districts currently only account for fewer than 1.1 percent of the 8,600 local government issuers that they rate on a yearly basis.

He also explained how Moody’s makes its ratings, why public schools have had an increased presence in the speculative grade category and who has bounced back from downgrades in the past.

What does Moody’s take into account when making its grade ratings for local governments?
We rate debt. An investor says they’re willing to invest “x” amount of money in a city or a school district and asks what are the odds they’re getting they’re money back. Essentially what we’re doing is looking at the credit quality of the issuer. It is their ability and willingness to pay what they’ve promised.

Broadly speaking, we look at long-term trends. Specifically speaking, we look at their economic base to see what their economic future might be. We’re trying to do a forward-thinking assessment. We also look at the place’s financial structure and how the place operates. Is it paying its bills? Paying the police and fire department? Paving the streets?

Al Medioli

We also look at the level of debt. In the debt analysis, we’ve started to look at pensions. Pensions are a very substantial fixed cost. We know that when cities go into bankruptcy, oftentimes the pensioners get paid before the bondholders even though there might not be a legal claim [that puts them in front].

What can the public do to find out whether a rating change is due to financial stress or an unwillingness to pay debt service?
City residents may not like if a bond rating falls, because they’re going to have to pay more to entice borrowers to invest in their city.

On our website there’s a lot of publicly available information including all of our rating methodologies. The broadest one is the general obligation ratings for local governments. It explains in much more detail what I was just talking about. What goes into a bond rating, how we compare the various attributes and a complete explanation of what all of our rating categories mean. At the highest end, AAA, we think there’s very little risk of anything going wrong. As you go down the rating scale, we’re signaling more and more risk to investors.

What are the consequences of local government issuers slipping into a speculative grade rating? Are any misunderstood?
Essentially the key thing to understand is that most municipal ratings are quite high. We have thousands and thousands of ratings. The average rating is AA. In the corporate world, the average rating is a BA grade, which is a below investment level, speculative grade. Municipal governments tend to be around for a long time. They have lots of resources and ability to stave off problems because they can still keep collecting taxes even though they have to cut back services. A corporation has much tighter operations.

We have a very small percentage of our ratings that are below investment grade in the muni sector. If you go into the BA category that does not mean that we think you are going to default. It means that there are more speculative elements that investors should be aware of.

There have been a growing number of public school districts entering the speculative grade category. Why is this happening?
School districts have been very stable for most of the modern history of public finance. A couple of years ago we had our first school district default in Michigan. We’ve had a couple of close calls since. We’re now talking about 92 ratings in the speculative grade — less than half a percent of our ratings in an investment grade. So while yes, there is a notable relative increase, the speculative grade ratings are still tiny.

The school district phenomena tend to be very localized. They often vary by state, because they tend to rely a lot on state aid and funding formulas. There’s a lot of change in Michigan. Because they not only had areas of economic distress, especially in the southeastern part of the state, but Michigan put into effect a reform measure where a student could take their state aid and go to a competing private, charter or public school. That caused some places to lose a lot of enrollment.

There’s no magic formula, but [we watch and] look at a place and see if they’re not growing, if they’re not able to manage their financial obligations well and if they’re in a deficit.

Are there any notable examples of government entities that have risen from speculative grade?
Again, if you go into the BA category, we don’t think you are in risk of default, but that there are speculative elements. They do not manage their financial resources well and end up in a deficit position.

Typically they’ll do what they have to do. They’ll cut costs. They raise taxes. They do some combination of things to manage the problem and regain financial stability. We’ve seen that in Harrison, New Jersey, and Newburgh, New York. These are places that had problems and have basically managed to earn their way back into investment grade, because they worked really hard to rebalance.