S&P Global Ratings has updated its scores for U.S. metropolitan statistical areas (MSAs) based on its local government GO criteria, priority-lien criteria, water/sewer criteria, and special assessment debt criteria (see "U.S. Local Governments General Obligation Ratings: Methodology And Assumptions" (published Sept. 12, 2013, on RatingsDirect), its "Priority-Lien Tax Revenue Debt" (published Oct. 22, 2018), "U.S. Public Finance Waterworks, Sanitary Sewer, And Drainage Utility Systems: Rating Methodology And Assumptions" (published Jan. 19, 2016), and "Special Assessment Debt Criteria" (published April 2, 2018).

Overall, 31 of the 384 MSA scores changed with 18 improving and 13 weakening. Additionally, one MSA was added: Poughkeepsie-Newburgh-Middletown, N.Y. This number of changes is lower than it has been during the past three years. The changes are due almost entirely to the employment growth aspect of the MSA score, which represents a comparison of each MSA's percentage change in employment over the past five years against the sum for all MSAs. The change in employment is measured through 2019, and does not take into account recent or projected economic changes in 2020 accompanying the COVID-19 pandemic.

Other factors influencing the changes include:

• S&P Global Ratings' view of the nation's growth trajectory wherein economic growth, as measured by GDP, peaked in 2018 and with a marginal slowing of GDP in 2019.
• The Tax Cuts and Jobs Acts of 2017, coupled with sustained higher federal spending, infused the economy with fiscal stimulus but the effects waned in 2019. Growth in the South and West outpaced the Midwest and Northeast.
• The trade and tariff situation, which is having disparate effects across the country with China tariff-related jobs focused in the Midwest, Northwest, and Southwest. As a result, our annual update to MSAs continues to show some fluctuation, particularly as employment growth follows evolving demographic trends with population gains in the mid-Atlantic, southern, and western states. For 2019 MSA changes see table 1.
• The spread of Coronavirus/COVID-19 and its economic effects on individual credits will be assessed in the interim as we assess historical data, current conditions, and economic projections. Our updated scores for U.S. MSAs reflect data from 2019. Participation in a broad and diverse MSA is only one component of our various criteria.

Table 1

The Broad And Diverse MSA Adjustment

We use the broad and diverse assessment in several different criteria pieces in USPF:

We assess participation in a larger broad and diversified economy at the MSA level. This assessment reflects evaluation of three components: employment diversity, employment growth, and the employment base (see paragraphs 45-47 of the criteria). To provide further transparency, we calculated the score for each MSA in accordance with our criteria, classifying their breadth and diversity as "strong," "moderate," or "weak" (see the map and table 2). MSAs are considered to be broad and diverse when the net score of the three components is strong, and are not considered broad and diverse when the net score is weak. If the net score is moderate, applying the broad and diverse adjustment to the initial economic score may be warranted if we determine the local government benefits significantly from participation within its respective MSA.

When changes occur, we publish our updated scores and highlight which MSAs have changed.

In S&P Global Ratings' Local Government GO criteria, the rating outcome is heavily weighted by economy (30%) when compared with the six other factors evaluated. The economic score assesses underlying indicators driving current and future locally derived revenues as well as the likelihood of future service demands resulting from economic deterioration. We favorably view a local government's participation in a larger broad and diversified economy, which can result in an automatic or qualitative adjustment to the indicative economic score.

In S&P Global Ratings' Priority Lien criteria, the economic fundamentals (20%) assessment includes whether the tax base is part of a large, broad and diverse MSA. (see paragraphs 14-16 and Table 3 of the criteria). The framework allows us to consider both stronger and weaker economic factors, and we assess each entity by looking at the variety of factors citied and use a preponderance of factors to determine the overall assessment. However, all else equal, lack of participation in a broad and diverse MSA is more likely to lead to a weaker economic factor assessment.

In S&P Global Ratings' U.S. Public Finance Waterworks, Sanitary Sewer, And Drainage Utility Systems: Rating Methodology And Assumptions criteria, economic fundamentals make up 45% of the enterprise risk profile. Included in the assessment of economic fundamentals is whether or not the utility's service area is within a MSA and, if so, if we consider that MSA to be broad and diverse. The application of an automatic or a qualitative adjustment (see paragraphs 51-53 of the criteria) uses the same methodology as that of our local government criteria.

In S&P Global Ratings' Special Assessment Debt criteria, the economic fundamentals (15%) assessment considers whether or not an assessment area or special taxing district is included in a broad and diverse MSA (see paragraphs 16 through 21 of the criteria). A key credit factor for special assessment debt involves assessing housing and real estate demand. Assessment or special taxing districts within what we consider a broad and diverse MSA are more likely to be accompanied by higher real estate demand than those outside of MSAs, or within MSAs we do not consider broad and diverse. Higher levels of real estate demand generally lead to faster price appreciation, more rapid development, shorter listing periods, and a stronger ability to recover delinquencies.

Table 2