Minneapolis enters the competitive market today with an $85 million general obligation bond sale to fund capital projects and current refund outstanding debt for savings.
About half of the proceeds will finance street, bridge, public building and utility improvements, with the remaining half refunding 1998 debt for $3.2 million in present-value savings.
Ahead of the sale, Fitch Ratings affirmed the city’s AAA rating with a stable outlook on $1.2 billion of GO debt and Moody’s Investors Service affirmed its Aa1 with a stable outlook. Standard & Poor’s rates Minneapolis AAA.
Analysts said the city benefits from a diverse economy, strong management, and moderate use of reserves to address budget stress. Its challenges include deferred capital needs, an above-average debt burden and the weak economy.
The tax base is valued at $42.3 billion. After multiple years of consecutive annual tax-base growth, the valuation declined by 1.3% in fiscal 2008 and 2.7% in fiscal 2009. Fitch said the city reported a sizable increase in foreclosures in 2007 and 2008, but figures for the first three months of 2009 have shown a slowdown.
Minneapolis has faced declining local government aid from the state since 2003, forcing it to rely more heavily on local property taxes, which are seen as a more stable revenue source. Still, about 26% of the general fund revenue come from the state, leaving it vulnerable to state budget stress. The proposed state budget would cut the city’s aid by $16.9 million in fiscal 2010 and $18 million in fiscal 2011.
The general fund balance fell $5.5 million in fiscal 2008, falling below the city’s target of 15% of the subsequent year’s budgeted revenue. Officials expect to hit the 15% mark at the close of fiscal 2009.
Minneapolis continues to improve the funding of its internal service levels, which accumulated significant cash deficits in the 1990s and contributed to Moody’s decision to strip the credit of its Aaa. Net assets remain negative in two of six funds, but combined assets of all the funds are now in positive territory.
Officials expect they will need to contribute an additional $7.8 million this year and $27.6 million next year for its closed pension funds due to statutory funding-requirement changes and investment declines due market losses. Most new employees participate in the statewide retirement fund.
“As an alternative to issuing pension debt, management is pursuing the merger of these [closed] funds into the larger statewide plans, which would help to stabilize the city’s funding requirements,” Moody’s wrote.