Moody’s downgrades Minneapolis credit score

The credit rating agency Moody’s says Minneapolis no longer qualifies for its top score — Aaa.  Yesterday Moody’s downgraded the city one notch to Aa1.

While Aa1 is still considered a good score, the downgrade could make it more expensive for Minneapolis to borrow money.

Moody’s warned the city in April that a downgrade was possible, because the company changed the way it assessed pension debt. Chicago, Cincinnati and 26 other local governments received the same warning.

“The new methodology is overly simplistic and puts too much emphasis on long-term pension obligations,” Minneapolis Chief Financial Officer Kevin Carpenter wrote in an e-mail informing the city’s elected leaders of the downgrade. Carpenter argued the city’s finances have actually improved, not deteriorated.

S&P and Fitch, the other two major rating agencies, each give Minneapolis their top credit score. Minneapolis only regained its Aaa rating from Moody’s in 2010, after spending most of the previous decade at Aa1.

In announcing this week’s downgrade, Moody’s praised the city’s “well-managed financial operations” and “relatively conservative debt portfolio.” But it noted Minneapolis is highly dependent on revenue from the state of Minnesota, which is also rated Aa1.

The credit rating agency gives the state a “negative outlook,” suggesting it could face a future downgrade. Minneapolis has a “stable” outlook.

UPDATE: Moody’s no longer has a negative outlook on the state’s credit rating. Today it revised Minnesota’s outlook to “stable.”