Cities: educated and indebted

By Cate Long
September 23, 2011

Thomson Reuters Municipal Market Data muniland expert Daniel Berger reminded me of a report that I had forgotten about that shows the correlations between the low credit ratings of Ohio’s cities and the cities’ very low levels of college graduates. Dan posits that Ohio, as part of America’s Rust Belt, didn’t require high levels of education for staff at its manufacturing plants and, accordingly, didn’t develop large college-educated workforces. As manufacturing moved out of the region, it left behind cities where the workforce was not attractive to high-tech industries and other sectors that required more educated workers. The cities declined and their credit ratings suffered. Such is the devastating effect of globalization.

I thought it might be interesting to chart some of the data in Daniel’s report (page 6) for America’s largest cities. Interestingly the data suggests that, contrary to Daniel’s findings for Ohio cities, that the more educated a city is, the lower its credit rating (see chart above). Or put another way, the dumb cities are getting higher grades. Quelle surprise!

After posing this question on Twitter two responses stuck out:

Morally Bankrupt @groditi Morally Bankrupt  @cate_long maybe debt size? Do cities tend to borrow more as education levels rise?

John Carney @carney John Carney  @cate_long I suspect that higher education level is also correlated with greater tolerance for debt, so more leveraged credit.

Both Morally Bankrupt and John Carney seem to be on to the answer. There might also be a tendency in the bond markets to lend more to cities with more educated, and possibly better paid, taxpayers. Higher levels of debt generally equal lower credit ratings. It’s an interesting finding from the data and one that should be explored more.

2 comments

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As always, Cate does an excellent job of taking my research to the next level. However, it is worth mentioning that the two major cities with education levels below 20% are (B1/BB/BB) Detroit, Michigan and (A1/AA/A+) Cleveland, Ohio. That means that these two cities are the only major cities with less than 20% of its population aged 25 years (or older) possessing a BA or higher. This may not bode well for them if their largest industries are trying to recruit young, urban, upwardly mobile, professionals.

Posted by dberger58 | Report as abusive

Thanks for the additional insight Dan.