Kelo, Eminent Domain, and Bond Ratings

Fitch Ratings has issued a short report warning that legislation to curtail eminent domain powers of local governments could adversely affect municipal credit.  In summary, the report states:

"If these efforts prove successful and eminent domain powers are restricted to a significant degree, Fitch Ratings believe municipal credit quality could be restrained or negatively affected.  By impairing a state or local government's efforts toward economic development, such legislation, if enacted, may limit opportunities for credit quality improvement and rating upgrades.  Moreover, Fitch believes that restrictive legislation has the potential to contribute to a diminution of credit quality over a longer term, in that the proposed laws limit a state or local government's ability to respond to economic blight or weakened conditions."