"You can choose not to have your bonds rated," Mancini said. "For a city like West Haven, in the financial situation it's in, it would be a pretty difficult thing to market."

The $31,700 of fees would pay a new teacher's salary in Connecticut for about nine months, according to data from the National Education Association, the Washington-based union.

'Extorting the Cities'

Cities and towns are "trapped" by the market's continued reliance on ratings, said Representative Barney Frank of Massachusetts, the ranking Democrat on the House Financial Services Committee.

"They are extorting the cities of this country," Frank said in a telephone interview. "By the criteria they use for the private sector, every full faith and credit municipal bond should be AAA."

Bonds from cities and countries are rated "more harshly" than those of banks and corporations, according to the academic study, which was released in August by Jess Cornaggia of Indiana University, Kimberly J. Cornaggia of American University, and John E. Hund from Rice. There's "virtually no chance" of default on bonds backed by the ability to tax, Frank said.

Last year, after Frank and other politicians complained, Moody's and Fitch said they would rate U.S. state and local governments on the same scale as companies. S&P says its ratings are comparable and no across the board adjustments are needed.

S&P lowered its ratings for thousands of municipal bonds after Aug. 5, when it cut the U.S. from AAA. Downgrades of municipal debt outpaced upgrades in the third quarter by the largest margin since 2008, according to a Moody's report. The reductions are "preposterous," Frank said.

The U.S. downgrade triggered a loss of $9.7 trillion in market value from global equities last quarter. Buffett said the U.S. should be "quadruple-A," while John Bellows, acting assistant Treasury secretary for economic policy, said S&P had made a $2 trillion mistake in its math. A Bloomberg survey of 1,031 subscribers found that 57 percent agreed with S&P's decision.

In 1936, the Office of the Comptroller of the Currency banned banks from holding bonds that were below investment grade. The SEC began using ratings in its rules in 1975, specifying that the only companies whose grades could be used were S&P, Moody's and Fitch. Those firms were designated nationally recognized statistical rating organizations, or NRSROs. There are now nine.