CHICAGO – Minneapolis lost its AAA score from Fitch Ratings.
Fitch dropped the city’s issuer default rating, assigned to $511 million of outstanding general obligation debt, to AA-plus from AAA Wednesday and assigned a stable outlook.
The city, Minnesota’s largest with a population of 413,651, will take competitive bids on $60 million of general obligation various purpose bonds on Tuesday. Proceeds will finance various public improvements and capital projects.
The downgrade “incorporates Fitch's review of the city's reporting of recent pension actuarial data that reveal higher and potentially growing liabilities and annual payments,” analysts wrote.
The city’s net debt and employee pension liabilities are moderate relative to the city's economic resource base and the rating is supported by favorable revenue growth prospects, broad independent revenue-raising ability, and solid budgetary flexibility.
“A track record of conservative budget practices is likely to persist,” Fitch added. “The city has sufficient budgetary flexibility to offset revenue declines in a moderate downturn by making limited cuts to services coupled with modest reserve reductions.’
Along with neighboring St. Paul, Minneapolis forms the core of the second-largest economic center in the Midwest behind Chicago. The local economic base benefits from the presence of major employers in the relatively stable healthcare, higher education and state & county government sectors.
The city accounts for a proportionate share of net pension liabilities for three statewide retirement systems -- the General Employees Retirement Fund, Public Employees Police and Fire Fund, and Teachers Retirement Association. The reported assets-to-liabilities ratio for all plans was 64.8% as of June 30, 2016 which is down from 82.2% a year earlier before the plans lowered their discount rates. The city’s net pension liabilities total $1.5 billion.
Contribution rates are statutorily determined by the state, and are typically set below the level reported by the actuary as necessary to achieve full prefunding under system-wide assumptions.
In Tuesday’s election, first-term council member Jacob Frey defeated Mayor Betsy Hodges and 14 other candidates.