At Moody's, we evaluate risk. After what we have been through together, and what lies ahead for you as mayors in the decade to come, there may be some considerable risk in my standing before you today!

Nevertheless, everyone here has some version of the same question to ask us: How can we maintain access to the credit markets as cheaply as possible?

Creditworthiness is usually treated as a technical, financial question.

Today, I'd like to look at it from a broader perspective, for I believe a structural transformation has been taking place in our national life which has been obscured by the economic boom of the 1980s.

Beneath the glittering surface of that boom, the principal responsibility -- fiscal responsibility, and therefore policy responsibility -- for some of the most troublesome problems that our nation faces has been relocated from the federal government to local government, and most particularly, the cities.

Mayors have become the shock troops confronting some newly unleashed, powerful, and disquieting forces that are altering our social and political system.

Let me, therefore, make a few observations about the nature and dimension of five of these forces, for it is largely in how these forces are managed that the margin of creditworthiness is found.

Disillusion, Disgust

First, there is widespread disillusionment -- even disgust -- with the traditional governmental processes by which we make our decisions and resolve our differences.

The signs are clear and unmistakable.

Elected leadership at all levels is losing the confidence of voters, who are increasingly choosing not to vote.

Only 50.2% of the eligible voters went to the polls in the 1988 elections, continuing a downward trend established in 1960 and hitting a low not equaled since 1924.

This choice cuts across party lines.

Only four out of 10 Democrats now bother to vote at all, and only three out of 10 Republicans.

Similarly, the proliferation of referenda and of direct voting on issues reflect growing citizen distrust of the normal channels of decision-making.

Revenue measures now often explicitly earmark related expenditures in order to immunize the funds from legislative tinkering.

On the municipal level, representative government seems less capable of making significant policy decisions just as those decisions are becoming more complex.

Urban democracy is becoming less effective just as it is inescapably assuming more responsibility.

Bridgeport, Conn., stands as a dramatic example of this breakdown.

Second, significant initiative is passing to the judiciary. Changes in case law and intervention by the courts have transformed the ways policy compromises are crafted and debt is being paid.

Policy is being made, and even funded, by the courts, raising the questions as to what extent local choice is still a reality and government 'by the people's still exists.

Federal Responsibility

Third, the federal government has largely divested itself of responsibility for the broad range of programs begun more than 25 years ago and collectively known as the Great Society.

Most of the Great Society agencies, and the corresponding funding legislation, are a fading memory.

Unfortunately, many of the problems targeted by the Great Society programs stubbornly refuse to vanish.

The incidence of infant mortality in the US remains extremely high among industrialized nations.

The life expectancy of adult males in Harlem, to choose only one example, is slightly less than that of males in Bangladesh.

We all know about the scourge of AIDS. But, for instance, tuberculosis -- a disease we thought of as eradicated in the 1940s -- has returned on a near-epidemic scale.

In these circumstances, it is a grave inconvenience that municipalities do not have the luxury of printing money when the books don't balance.

The New Agenda

Fourth, to complicate matters further, a new agenda has arisen alongside this social agenda. There is now broad-based concern about the environment, about the quality of public education, health, and about more effective law enforcement.

Fueled by the media and national political rhetoric, expectations are being created about the capacity of government to deal with these problems that are dramatically at odds with reality.

Thus, the problems you face as community leaders are as daunting as ever, certainly more visible, and seem to be proliferating.

Both the social agenda and this new national agenda have mobilized substantial popular support.

But this support has become increasingly fragmented, narrowly self-interested, and less amenable to compromise "in the public interest."

In part, people have lost faith in the effectiveness of representative government altogether.

In part, they are aware the federal government has terminated its support of so many social programs.

Perhaps most important, however, underlying these and other symptoms is widespread doubt that there is any longer an agreed set of community values, priorities around which a responsive government can manage community affairs.

Interest group demands have become more shrill because the political process appears more and more to be a zero-sum game.

People are less confident than ever that they will get an equitable slice of a shrinking pie and they can no longer find a consensus on what "equitable" means.

At the same time, the disgruntled taxpayer has become increasingly articulate in his skepticism regarding government's capacity to control spending effectively and less willing to delegate spending decisions to uncertain fates and bottomless pits.

Municipal Globalization

Fifth, we are rapidly becoming one world.

For the last decade, globalization has been a word for the cover of weekly business magazines, not municipal politics.

That time has passed. Each of you is now in active competition for jobs, investment, and initiative.

The competitive arena is worldwide. We are already in an era in which blips on the computer screen of a Japanese banker directly affect your schoool budget or welfare program.

As this irreversible knitting together of our world proceeds, local advantage will reside not with an access to the federal trough or quiescent taxpayers.

It will stem from a competitive educational system, skilled labor pools, streamlined government, modern infrastructure, tax systems which encourage growth, labor peace, and a climate hospitable to entrepreneurship.

It is sometimes thought that what is going on here is essentially a tug-of-war between local authorities and a recalcitrant, increasingly stingy federal government.

I believe that is to miss the true nature of the struggle.

The fact is that our society has identified more needs -- pressing, legitimate needs -- than it can generate resources to meet.

The real struggle is over the basic institutions through which we govern ourselves and order our priorities.

The question, in other words, is not 'who should pay?' It is, rather 'what should we pay for and how will we make that decision?'

I believe, in the end, that the federal government, local authorities, taxpayers, investors, and urban interest groups accept that solving all these problems is beyond our present resources.

So which ones do we try to solve? And where do we make that decision? In the city council or assembly? In the bureaucracy? The courts? The streets?

Of course, there is always the option of not making the decision, not ordering our priorities.

That is the option of inaction, indecision, waiting for others to change their minds, waiting for the recession to end, and so forth.

I firmly believe that this option makes problems worse, not better, and ultimately harder to solve, I believe in doing a few things well, although I know that determining which few things is a difficult process.

The operation of all these forces -- disillusionment with government, the role of the judiciary, the withdrawal of federal funding, the new agenda, and globalization -- is straining the financial resources and the very institutional structure of our representative system of government.

It is putting severe pressures upon the credit standing of our municipalities, and the pressures are not going to disappear.

With these forces in mind, therefore, let me return to the question.

How can a city stay in the credit markets with a minimum cost burden?

Or, to put it another way, what will make for a creditworthy government?

Above All, Credibility

There are a good many technical financial answers to those questions in the short term, all relevant, all important.]

These you all know. You discuss them with us every day.

But let me give you a nonfinancial response for the long term, a factor that makes a critical difference at the margin even in the short term, but a fundamental difference over time: that critical element for a city is credibility with all its constituents, its citizens as taxpayers present and future and as consumers and providers of services, but also its investors, present and prospective.

Credibility is not achieved in the end by paying a fat retainer to a public relations firm. Nor is it earned overnight.

Credibility must now be earned by facing the tough questions of urban government and facing them together with those constituents.

Credibility requires owning up to what those constituents suspect in any case: that we can't afford everything we want, and therefore must make choices, however painful.

Credibility must be achieved by straightforward accounting, by presenting a rigorously honest bill of the costs involved for all proposed objectives.

Authorities too often take the position that citizens aren't interested in such details.

What this usually means is that the authorities themselves are fearful of an open accounting. Besides, the critical issues are often not technical details but the very fact of citizen awareness and participation.

There is a highly instructive example in Columbus, Ohio, which has the legal authority to issue bonds without going to the voters. But the Columbus authorities insist upon consulting the taxpayers in any event, going out of their way to maximize citizen participation.

All of this amounts to saying that creditworthiness can only be achieved in the long run by revitalizing the processes and institutions of representative government.

That requires a good dose of leadership.

But credibility is both a political and a financial issue.

Anyone who has dealt with Moody's klnows that we represent the interest of investors.

That interest seeks primarily a stability and reasonable predictability regarding investments, which in turn requires an open, effective, credible issuer.

Creditors are seeking the same thing from government that citizens seek: full disclosure, an honest accounting of costs, an accurate and unflinching recognition of problems.

The unknown is usually more threatening and ominous than the known -- even when the known includes serious difficulties.

We are all in the broadest sense involved in a cooperative process rather than an adversarial one.

When the issuer has earned credibility, it is reflected in credit standing, and thus in access to investor capital at the most advantageous rates possible.

The investor obviously prefers putting money where the facts are on the table.

The citizen is far more likely to support a government which has acknowledged its responsibilities and limitations alike, broughts its constituents into the decision-making process, and candidly disclosed what it will all cost.

I wish this were all as easy to do as to say.

Democracy Is Not Tiday

Democracy was not created for its virtues of tidiness. Deciding how to solve problems through representative institutions is an awkward and often acrimonous process in the best of times.

We are not in the best of times.

The temptation to resort to the old bromides is admittedly great -- it always is.

Blame the feds and wait for the pendulum to swing. Fudge the costs. Promise each interest group that it will get something, even more than something. Complain about deficits. Levy more and more taxes upon concentrations of wealth, whether business or personal. Proclaim good riddance to those who move out in search of a more hospitable economic environment.

The comfort to be found in these approaches is fleeting at best.

True enough, they may delay a confrontation with reality, but more often they solidify paralysis.

Inevitably, none of the old bromides is a substitute for decisions, however painful, and programs, however focused and limited.

Decisions and programs produce results, and results alter structures and attitudes.

Citizen disillusionment with representative government today springs not so much from incidents of corruption or pervasive antagonism as from government's failure to be effective.

Disciplined management sells. Social and political technology works better when put in the service of clear, if limited, objectives.

The hardest part will be coming to live with the reality of limitations. We must come out of the 1980s illusion that we can have everything we want.

We must make some hard choices without cutting corners on disclosure or trimming the estimate of costs. We must learn to refocus on the basic functions of government, and to make trade-offs in the full realization of what we are doing. We at Moody's will not presume to offer a prescription.

But, we all must recognize that the same choices are neither required nor useful in all situations or at all times.

The unresolved portion of our problems will cause as difficulty, but we cannot let that paralyze us.

Besides, that portion will command the attention and priorities of future resources not now available.

We are not condemned to doing nothing because we cannot do everything. We can commit our impressive resources and will to taking on some pieces of the agenda, some few things, and doing them well.

Yes, there must be more revenue than expense to be creditworthy.

What is wanted must be paid for: At the end of the day, the books have to balance.

But the extra element -- the margin that separates the stronger from the weaker -- is effective, credible management of the process.

As community leaders weave this new fabric for America, we, at Moody's, wish them well.

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