The Minneapolis bond rating was lowered one notch Monday by Moody’s Investor’s Services because of pension pressures, lower property valuations and reliance on state aid.
But the report gives the city finances a “stable outlook,” and says other positive things, like:
Role as a Midwestern economic center with a sizeable tax base that benefits from diverse employment opportunities and institutional stability in government, education, and health care
Well-managed financial operations, including comprehensive multi-year planning and institutionalized reporting mechanisms
Demonstrated willingness to increase property taxes and implement budgetary adjustments in order to maintain or replenish reserves despite revenue and expenditure pressures
Relatively conservative debt portfolio with modest variable rate debt and no exposure to derivatives
But then there were the problems:
Property values have declined in each of the past six years, though are beginning to moderate
Dependence on the State of Minnesota (general obligation rated Aa1/negative outlook) for a substantial portion of operating revenues
Improving reserve levels, still below national medians
Though declining, debt levels continue to exceed national medians
Outsized Moody’s adjusted net pension liability of 4.3 times fiscal 2012 operating revenues
High fixed costs as percentage of operating expenditures
As of now, Minneapolis retains AAA ratings with the other two major rating agencies, Fitch and Standard and Poor’s, the Star Tribune said.
Three years ago, Moody’s had raised the city’s rating to the top level, AAA, after many years at Aa1.
Says the new Moody’s report:
The stable outlook reflects the expectation that the city’s tax base will strengthen in the long term as the city continues its role as the economic engine of the state, and that financial operations will remain healthy given strong management policies and positive performance despite revenues pressures.
What Could Change the Rating — UP
* Resumed and sustained growth in city’s tax valuations
* Significant decreases in fixed costs
What Could Change the Rating – DOWN
* Economic weakening that leads to increased unemployment or further declines in tax base valuation
* Budgetary pressures that lead to narrowing of reserves in the General Fund or other funds
* A relaxing of the city’s strong financial management practices
* Significant increases in fixed costs.