A growing number of Minnesota cities are seeing credit rating downgrades from Moody’s Investors Service. According to the Mankato Free Press, “About 40 Minnesota cities, including six in south-central Minnesota have seen their credit ratings lowered in the past 18 months, almost all by Moody’s. There was only one downgrade in 2011. One area city, Le Center, dropped seven notches in a so-called ‘super downgrade,’ in 2012, causing the city to lose its ‘investment grade’ status.”
The bad bonding news is not limited to small cities or Greater Minnesota. Moody’s made headlines by downgrading the City of Minneapolis’ outstanding general obligation debt this week. The rating applies to about $679 million in debt. General obligation bonds are generally considered to be the least risky form of debt, as they are backed by the full faith and credit of taxpayers. According to the Star Tribune, “Moody’s said the city’s challenges are pension obligations, declining property values, sizable fixed costs, dependence on state revenue and declining yet above-average debt levels.”
The downgrades come on the heels of recent changes to the way Moody’s assesses local government pension liabilities, which “reflect the rating agency’s view that pension obligations are a significant source of credit pressure for governments and warrant a more conservative view of the potential size of the obligations.”
The new Moody’s rules, as well as new accounting standards adopted by the Governmental Accounting Standards Board, are further reason for state and local policymakers to get serious about reforming the state’s unsustainable defined benefit pension system.