Citing the city's pension obligations, a major rating agency downgraded Minneapolis's credit rating Monday night, delivering a largely symbolic blow to one of Mayor R.T. Rybak's signature achievements.

The downgrade from Moody's Investors Services means the city could pay slightly higher interest rates when it borrows for major projects, though two experts said it is unlikely to have a significant impact. It comes three years after the city reclaimed its AAA rating with Moody's, after sitting at Aa1 since 2001, an accomplishment frequently touted by top City Hall officials.

The city's chief financial officer, Kevin Carpenter, said the downgrade would likely have no impact on the $65 million in borrowing necessary for a massive public-private redevelopment near the new Vikings stadium. The stadium itself will be paid for with state bonds, funded partly by city sales taxes.

Monday's announcement returned Minneapolis to Aa1, the second-highest rating, based heavily on new calculations of the city's future pension liabilities. The city retained its AAA ratings with the two other major rating agencies, Fitch and Standard & Poor's.

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. They lauded the city's financial management, however, as well as its willingness to raise taxes and "implement budgetary adjustments" to maintain reserves.

On Tuesday, Moody's also raised the financial outlook for the state of Minnesota to "stable" after setting it at "negative" in 2001. Minnesota has had an Aa1 bond rating since being downgraded in 2003.

In this report on the state of Minnesota outlook, Moody's left the bond rating unchanged. But the firm said that the change in financial outlook reflects the "state's strong financial management that has resulted in improved revenue performance, replenishment of budget reserves, and budget-balancing solutions that are largely recurring."

"This action affirms that the state's financial management is headed in the right direction," said Jim Scho­wal­ter, commissioner of Minnesota Management & Budget.

New calculation

The downgrade of Minneapolis comes largely as a result of Moody's adjustment to how it calculates pension liabilities. That adjustment contributed to the recent downgrades of other local governments, including Cincinnati, Ohio; Santa Fe, N.M.; and Chicago.

Carpenter said Tuesday the pension liability is about $700 million, based on a recent report from the state. Moody's, which makes different assumptions about the future obligations, pegged it at $1.96 billion in fiscal year 2012 — 4.29 times operating revenues.

In an e-mail to City Hall officials Monday night, Carpenter said the new methodology is "overly simplistic" and rests too heavily on long-term pension obligations.

Carpenter noted that Minneapolis has paid off $531 million in debt since 2004. The state has also absorbed three closed city pension funds into statewide plans, which gives the city more time to pay its pension debts.

In addition to the pensions, Moody's chided the city for high fixed costs, which comprised "a significant" 28.3 percent of operating revenues in 2012.

Jay Kiedrowski, a senior fellow at the Humphrey School of Public Affairs, and Wayne Schmidt, chief information officer of Gradient Investments, an investment advisory firm, said the city will likely be able to sell bonds at a same or similar rate because the city's overall rating remains high.

Staff writer Jim Ragsdale contributed to this report.