CHICAGO - (Business Wire) Fitch Ratings has assigned an 'AAA' rating to the City of Minneapolis, Minnesota's (the city) following issues: --$40.3 million general obligation (GO) various purpose refunding bonds, series 2009B;
--$6.1 million GO tax increment refunding bonds (St. Thomas/WMEP Parking Ramp), series 2009C.
The bonds will sell competitively on Nov. 9, 2009. The bulk of series 2009B proceeds will convert existing variable-rate debt to fixed-rate debt; about $9.8 million of proceeds will finance improvements within special assessment areas. Proceeds of series 2009C will refinance outstanding GO debt. The city pledges its full faith and credit and unlimited ad valorem taxes in repaying the bonds. In addition, Fitch affirms the 'AAA' rating on the city's approximately $1.1 billion of outstanding GO debt. The Rating Outlook is Stable.
The city's 'AAA' rating reflects its broad economy, strong and consistent financial performance, prudent long-term planning, and moderate tax-supported debt levels. The primary risk to the city continues to be reductions in state aid, which occurred in 2008 and 2009 and are likely to continue. In 2008, unexpectedly sizeable state aid un-allotments occurred in December, allowing the city little reaction time and reducing its general fund balance below the city's policy goal. In response, in 2009 the city implemented budget cuts that offset expected state aid losses; projected year-end results indicate the city will achieve a general fund surplus and reserve levels in excess of its target policy.
The city's unemployment rate equaled 7.4% in September 2009, up from 5.7% in September 2008, but well below the nation's 9.5% rate in the same month. Although the city continues to have somewhat elevated subprime mortgage exposure and reported a sizable increase in foreclosures in 2007 and 2008, year-to-date figures for 2009 show a significant slowdown in the number of foreclosures. At this point, officials believe that foreclosures in the city have peaked, although further declines in housing values are anticipated for 2009 and 2010.
With the exception of fiscal 2008, the general fund has produced consistent operating surpluses, yielding an unreserved balance slightly above the city's policy of 15% of the following years' budgeted revenues. Fiscal 2008 shows a $5.5 million operating shortfall, reducing the city's fund balance to $49.7 million or about 13.5% of next year's revenues, below the city's 15% fund balance goal. Absent the un-allotment cuts, the city would have produced another solid surplus. In fiscal 2009, the city conservatively reduced its spending by about $16 million through the elimination of vacant positions and limited reductions in services, while revenues were enhanced by small fee increases and a one-time transfer of proceeds from an asset sale several years ago. Currently, the city anticipates fiscal 2009 will end with a solid surplus and reserve levels approximating 16% of the following year's spending.
In fiscal 2010, budget cuts will continue and the city will seek a property tax increase of 11.3%, above its typical 8% level, to offset state aid cuts in excess of $20 million as well as increased pension costs stemming from investment losses in 2008. Fitch anticipates additional state aid un-allotments could be announced in 2010. However, the city's financial stewardship is conservative and experienced, having successfully dealt with prior sizable state aid reductions in the past. Fitch believes the city's willingness and demonstrated ability to align spending with available revenues will preserve adequate fiscal reserves, a key credit consideration.
The city's overall debt burden, including debt of the Minneapolis public schools and other overlapping governments, equals $1.2 billion, or $3,027 per capita and 2.9% of estimated market property value. Principal amortization is slightly above average and financing needs appear to be limited. Pension funding has been strong, although market losses will reduce funded ratios significantly in the next several years. Also, the city has a very modest liability for other post employment benefits as retirees bear the cost of health insurance premiums.
Additional information is available at www.fitchratings.com.
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Fitch Ratings
Melanie A.J. Shaker, +1-312-368-3143 (Chicago)
or
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com
