In a nation that runs on borrowed money, a black mark on your credit rating can halt your forward progress.
This applies to towns, as well as people and businesses. But not always.
In Pennsylvania and New Jersey, every square inch of real estate is part of a local municipality and a school district, and probably one or more additional local authorities with the power to borrow money from investors, in the name of the people.
During the fat years, both parties cheerfully committed taxpayers to long-term projects they will still be paying for when ex-mayors are decades into their state-funded pensions. A sprawling industry of tax-free bond investors, lawyers, accountants, and bond insurers grew up to justify all kinds of public projects and the fees they were paid.
Pennsylvania's Gov. Corbett feels so strongly about the sanctity of paying one's creditors that he has turned the City of Harrisburg over to a receiver - a professional bond lawyer.
The bondholders look to get paid, even if the receiver has to sell parks and garages, fire security personnel, or trim retirement checks. This despite loud objections from Harrisburg City Council, which thinks the professionals and the bond insurers who helped their predecessors approve reckless borrowing ought to share some of the pain.
In South Jersey, Collingswood Mayor Jim Maley has taken to YouTube, posting 10-minute earnest, frustrated complaints about Moody's Investors Service, which cut the town's bond rating to junk status, making its debt undesirable for other institutional investors, on fears a loan guarantee for a troubled private condo development will go bad. Maley says he expects to refinance the deal, but Moody's has refused pleas to restore Collingswood's investment-grade rating.
Never mind that Moody's and its peer, Standard & Poor's, discredited themselves when they failed to detect the reckless subprime lending that underlay billions in mortgage securities. Those securities collapsed, froze the financial system, and stalled the economy in 2008. The federal government has left them in charge of judging who is likely to pay their bills and whose debt is worth funding.
Last week, Moody's turned its big gun on pleasant Newtown Township, Bucks County, population almost 20,000, median family income $92,000, almost double the state average.
The agency issued a rare two-notch cut in Newtown's credit rating on nearly $10 million in outstanding township bonds, to Aa1, citing falling tax revenues and a "deterioration" in the township's cash reserve - to $1 million, from $3 million in 2008.
Newtown has cut spending, laying off five workers, but not fast enough to make up for a drop in tax revenues. Unlike many suburbs, which rely on real estate taxes, more than half of Newtown's budget is financed from wage taxes. Layoffs at military contractor Lockheed Martin and the shutting of ICT Group Inc.'s call center have cut revenue from wage taxes by 6 percent in two years, Moody's analyst Kristina Piccarretto noted in her report.
What to do? The Republican majority on Newtown's divided Board of Supervisors had asked police and fire unions for a wage freeze. The workers said no.
The Democratic members suggested a tax hike (Newtown's property tax is low, by suburban standards). The majority refused.
Robert L. Ciervo, head of the Board of Supervisors, figured Newtown still had a million dollars in cash, a 10 percent cushion for its annual budget. State guidelines called for at least 5 percent. He figures that should be evidence enough of Newtown's solvency.
But Moody's doesn't just look at absolute debt. It also tracked the trend of the surplus, falling from $3 million to $1 million in two years. Relatively, that looks bad.
So Moody's cut.
The township's reaction? Big deal.
Ciervo rejected the suggestion Newtown was "living beyond its means." That "would signify spending has increased dramatically," which it hasn't, he told me.
But revenues are falling a lot faster than spending, I noted. Doesn't that amount to the same thing?
Doesn't matter, Ciervo said, because "I don't see us [borrowing] money, probably, in the next 10, 15 years."
The downgrade doesn't affect current fixed-rate bonds that Newtown sold when it had more cash and a higher credit rating.
So Newtown, unlike Harrisburg or Collingswood, can afford to thumb its nose at Wall Street.
Where did the borrowed money go? The township used the $10 million to build two new offices and a public-works center, and "move the cops out of that trailer," Ciervo said.
Newtown could afford this in the prosperous 2000s because it hadn't racked up a lot of previous debt. And it can afford not to please Wall Street at residents' expense today because it doesn't plan to borrow more, he added.
Why not boost taxes, just to be prudent? "Our residents are not getting raises. They've been losing their jobs," Ciervo said.
If you don't need to borrow, the debt machine can't crush you.
Contact columnist Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com or @PhillyJoeD on Twitter.