The same day that major credit rating agency Moody’s Investor Services downgraded Minneapolis’ credit rating, the agency improved its outlook on the State of Minnesota’s general obligation bonds from “negative” to “stable.”
Moody’s had placed Minnesota on “negative watch” in 2001 and had downgraded the state’s bond rating from AAA to Aa1 in 2003.
The agency on Tuesday reaffirmed its Aa1 rating for $5.7 billion in general obligation bonds but improved its "rating outlook"—saying that the move 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.”
The agency said it expects Minnesota “will continue to exhibit sound financial practices that will lead to further improvement in the state’s overall balance sheet.”
The state plans to sell three series of bonds in August, and credit agency ratings influence interest rates for those bonds, according to a Star Tribune report.
Looking forward, Moody’s cited several factors that could cause the agency to raise its rating for the state. Among them is reversing a “trend of gridlock in the state that leads to the use of mostly non-recurring solutions when confronting diminishing revenues.”
Similarly, a “return to a reliance on one-time solutions to solve recurring budget shortfalls” could cause the state’s rating to go down, Moody’s said.
Minnesota Management & Budget Commissioner Jim Schowalter said in a Tuesday statement that Moody’s revised outlook “affirms that the state’s financial management is headed in the right direction.”
“The state has a balanced budget, a projected structural balance in the out years, has filled the cash flow and budget reserve accounts, and repaid two-thirds of the previous education shifts,” he added.