Minneapolis City Council members reviewing the “State of the City” at a meeting on Wednesday may have spotted an interesting fact about the city’s debt. Namely, that it is projected to increase.
That wouldn’t ordinarily be news, but it’s the first time in a decade that the city’s general obligation debt balance — tied to the full faith and credit of the city — will increase rather than decrease. Paying down the formerly debt-ridden budget is an achievement often cited by former Mayor R.T. Rybak and current Mayor Betsy Hodges.
Chief financial officer Kevin Carpenter said that in past years, the city has paid off more general obligation debt than it issued. The increase is due largely to the Downtown East project, which requires $65 million in public financing, and the $100 million renovation of Target Center. Half of the Target Center renovation will be paid by private sources, but the city is issuing the bonds.
Carpenter noted that both projects have defined revenue streams, stressing that general obligation debt tied only to property taxes continues to decrease. The city opted for general obligation bonds for those projects rather than revenue bonds, which are not backed by the city’s levying capabilities, largely because of the more attractive interest rates.
The Downtown East debt is expected to be paid by parking revenues — with shortfalls covered by Ryan Companies — and the public component of the Target Center renovation will be covered by city sales taxes.
“By lowering our overall debt, we have more flexibility and opportunity for future projects,” Carpenter wrote in an e-mail.
This was echoed by Council President Barb Johnson on Thursday. “I think we’re being very, very conservative and taking advantage [of] low interest rates at this time,” Johnson said. “We’ve done the right things, which is reducing our higher-cost debt. And it allows us to kick up our debt in the times that it makes sense to do so.”
The projected general obligation debt balance of $852 million in 2014 represents a 16 percent increase over 2013. It’s a far cry from $1.2 billion in 2004, however, which is when the general obligation debt reached its peak.
The city earned the top credit rating, AAA, from all three rating agencies in 2010. But Moody’s downgraded Minneapolis one spot to Aa1 in 2013.