Minneapolis credit rating downgraded by Moody’s, likely impacting the mayoral race
Moody’s Investors Service downgraded Minneapolis’s credit rating Monday night, delivering a blow to one of Mayor R.T. Rybak’s signature achievements.
The downgrade means the city will likely pay higher interest rates when it issues bonds for major projects. The city’s AAA credit rating has been frequently touted by both the mayor and City Council as evidence that they have righted the city’s finances after years of poor management.
Minneapolis was returned to Aa1, one rank below AAA, for its $679 million of outstanding general obligation debt. The city retains AAA ratings with the other two major rating agencies, Fitch and Standard and Poor’s.
Moody’s noted declining property values, high pension liabilities, sizeable fixed costs, dependence on state revenue and above average debt levels. Moody’s gave the city a “stable” outlook, however, based on expectations “that the city’s tax base will strengthen” and “financial operations will remain healthy given strong management policies and positive performance despite revenues pressures.”
It comes three years after the city restored it’s AAA rating with Moody’s, after sitting at Aa1 since 2001.
The state of Minnesota shares a Aa1 rating with Moody’s, after being downgraded in 2011.
“We believe the Aa1 [general obligation] rating incorporates the city’s sizeable adjusted net pension liability as well as the city’s other long-term credit fundamentals,” the company said in a statement.
The city’s chief financial officer, Kevin Carpenter, said in an e-mail to City Hall officials Monday night that the new methodology is “overly simplistic” and rests too heavily on long-term pension obligations.
“Certainly pension obligations are important to the City’s overall financial position, which is why we have worked so hard to stabilize our pension funds over the past decade,” Carpenter wrote. “Indeed, this action by Moody’s comes less than one year after Minneapolis had received a Aaa rating from the agency in 2012, and since that time our financial situation has continued to improve.”
The downgrade did not address the recent state takeover of the city’s closed police and fire pensions, which took a load off of the city’s budget.