The Free Press, Mankato, MN

Local News

June 16, 2013

N. Kato study: Unpaid assessments spawned debt

Fund transfers were only short-term solution

NORTH MANKATO — A new study of North Mankato's debt shows the city relied on transfers of millions of dollars between funds to make up for unpaid special assessments.

In the next few years, the city will have to find ways to pay back that debt, currently at $3.2 million, and collect those assessments without relying on fund transfers.

Northland Security's 96-page debt study suggests the property tax levy will need to rise by $357,000 between 2014 and 2017. That's equivalent to a 7 percent increase in the levy, but Mayor Mark Dehen said North Mankatoans' taxes may not necessarily rise.

“Is it simply property tax increases? No. We will look at what our options are,” he said. “Will we look at reducing some services? Possibly.”

In March, Moody's Investors Service reduced the city's credit rating from Aa3 to A3 and placed it under review for possible further changes.

That review was apparently finished by last Wednesday, when Moody's said the city wouldn't be downgraded again at that time. However, the outlook for the city was revised to negative.

The agency's explanation for the “negative” outlook provides a more simply-worded explanation than the debt study.

“The negative outlook reflects the city's historic unwillingness to increase the property tax levy to meet high fixed debt service expenditures, expected flat levy for fiscal 2014, and somewhat aggressive special assessment assumptions potentially leading to further narrowing of operating reserves.”

The review, dated Wednesday, seems to make a reference to the debt study, listing this as a strength: “New management has produced a comprehensive plan to address high annual debt service requirements.”

Dehen said the core of the city's problem are unpaid special assessments for infrastructure improvements the city incurred when it built roads and pipes for new housing developments. The city had planned on being paid back when the lots sold, but many were sent into foreclosure due to the recession and housing crisis. So the city was left with debt for these improvements but with no money to pay it back.

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