The eyes of nervous city financial managers around the country were on Bloomington last week as the city sailed into uncertain financial waters to put $9.6 million in general obligation bonds up for bid.

Bloomington was one of the first cities to venture back into the municipal bond market after two weeks in which some of the biggest buyers of bonds went out of business. Who would bid, and what kind of interest would they offer?

There were six bids, and Bloomington sold its 20-year bonds for street and sidewalk improvement at an interest rate of 4.46 percent. City leaders were pleased -- and relieved.

"That was great in this market," said Lori Economy-Scholler, Bloomington's finance director. The sale meant she didn't have to resort to a last-minute defense tactic: a same-day resolution she had already prepared for the City Council that would have delayed the sale for up to a month in the hope that a volatile market would settle down.

While some cities outside of Minnesota and states like California are in crisis because of their inability to access the municipal bond market, Minnesota cities seem to be coping with the upheaval. Officials in several cities said that while they are staying on top of the markets and staying in touch with financial advisers, none was in trouble.

One reason is that Minnesota, unlike some other states, allows cities and counties to issue general obligation bonds for things such as new buildings or street improvements without holding a referendum. The state's tougher security laws also allow investors to feel more confident about buying bonds here, said Mark Ruff, executive vice president of Roseville-based Ehlers and Associates Inc., which advises cities and other public clients on debt planning.

Strong interest in Bloomington's bonds is linked to the city's stellar AAA rating by three rating firms. It's part of what investors call "fleeing to quality" -- cashing in equity for safer investments like treasury and municipal bonds.

"We're not going to be merged or consolidated or go out of business," Economy-Scholler said.

Ruff said the absence of big firms that traditionally bought large amounts of debt would make him nervous if he were trying to sell $200 million in bonds. But most cities issue bonds worth between $1 million and $15 million. Ruff said he is "calming people and talking them through this."

"We have postponed a few sales two to three weeks, just letting the market settle down a little bit," he said. "This week, we've seen a pretty good appetite from the bond market for general obligation bonds and other very secure forms of debt issued by Minnesota cities and counties."

But there are changes in the market. Economy-Scholler said the six bidders for Bloomington's bonds included 18 different financial institutions, some of them acting in consortiums. There were fewer banks and more institutional investors. And a month ago, interest rates were slightly lower.

But Economy-Scholler said the accepted bid is well within the average for the city's bonds over the last 20 years.

Edina, Richfield and Chanhassen all expect to enter the bond market during the next few months to help pay for new city facilities. Officials in those cities said they were watchful but not worried.

Before last week, "If anybody was going to try to sell, the market was so shaky that people had to delay bond sales until things stabilized," said Chanhassen City Manager Todd Gerhardt. He said Chanhassen officials still plan to sell $8 million in bonds on Oct. 27 but could hold back if the bond market worsened.

Waiting can pay off. In February, Hennepin County saved $2 million in interest payments by delaying a bond sale, said Dave Lawless, county finance director.

Two weeks ago, Lawless was considering three bond issues totaling about $90 million. Last week, the county sold one of those three -- a $15 million, 10-year issue to finance a new financial and human resources system. There were five bidders; the county accepted a bid with a 3.728 percent interest rate.

"It was a way to test the market," Lawless said. "Maybe a year ago, we would have had one or two more bidders. ... This is having an impact on us, but it's not incredibly severe. Everybody's just a little more cautious about picking their timing. We have the flexibility to wait."

In Duluth, where the city has pared a 2008 budget deficit of $6.5 million to $600,000 and anticipates an $8.5 million deficit next year, tumult in the bond market adds to the city's financial problems. The city has already laid off about 150 full- and part-time employees. For now, it has shelved controversial plans to sell a 100-year-old Tiffany stained-glass window, but it is proceeding with the sale of four residential lots in the city's Park Point area on Lake Superior worth a total of almost $2 million.

Next year, city officials planned two major infrastructure improvements: a $2.5 million improvement to a water pump station, and $2.8 million of work on water, gas and sanitary sewer systems.

"We obviously don't have the cash on hand to pay for that out of pocket, and the uncertainty in the bond market makes these questionable," said Mayor Don Ness. "The challenge before us is difficult enough. ... The burden of the greed and irresponsibility at the national level has trickled down to communities and households like those in Duluth."

Many city officials said they are willing to sit tight and wait out the market if they can. But Ruff said there is danger in sitting on the sidelines too long.

"There might be a glut in the market when things settle down," he said. "Interest rates could go up."

Mary Jane Smetanka • 612-673-7380