Moody’s Investor Services has downgraded the city’s credit rating because of pension liabilities and property value decreases, among other factors.
Minneapolis previous had the top rating from Moody’s, a score of Aaa. It has now been downgraded to Aa1, but with a stable outlook. Aa1 is the second best rating.
“The city's rating was placed on review for downgrade due to its large adjusted net pension liability relative to its rating category as part of our new approach to analyzing state and local government pension liabilities,” Moody’s wrote.
The downgrade comes as a blow to the mayor’s office, which has touted the Aaa rating for years. A lower score could mean higher interest on debt.
Mayor R.T. Rybak in speeches and press releases frequently mentions the strong rating while saying he has paid down debt – about $500 million since 2004.
In an e-mail to the mayor and council members, Minneapolis Chief Financial Officer Kevin Carpenter said the city still holds a AAA bond rating from Fitch and Standard and Poor’s.
“Because Minneapolis retains the highest possible credit ratings from the other two rating agencies, Fitch and Standard and Poor’s, we do not anticipate that this 1-notch adjustment from Moody’s will have any material financial impact on the City’s fiscal health moving forward,” Carpenter wrote.
He also criticized the new methodology Moody’s is using to rate cities.
“We believe that the new methodology is overly simplistic and puts too much emphasis on long-term pension obligations,” Carpenter said.
Moody’s noted that Minneapolis has $679 million in outstanding general obligation debt. It said that the city’s property values declined for six years before stabilizing in 2012.
Moody’s said the city depends too much on the state of Minnesota for operating revenues. Minnesota also has a Aa1 rating.
Moody’s praised Minneapolis for strong management of fiscal operations, maintaining and replenishing its reserves and holding a relatively conservative debt portfolio.
You can read the full explanation here.
Mayoral candidate Cam Winton issued a statement outlining how he would restore the Aaa rating. He said he would switch from defined-benefit pension to defined-contribution 401 (k)-style retirement accounts. He said he would also lower operating expenses by combining back offices with Hennepin County.