NORTH MANKATO — North Mankato’s credit rating was downgraded late last week and could drop further with Moody’s Investors Service citing a slumping tax base, waning special assessment revenue, falling state aid and flagging cash liquidity.
Moody’s dropped the rating on the city’s $15 million in outstanding general obligation debt from Aa3 to A3 with that lower rating “placed under review for possible further downgrade, pending receipt of results from fiscal 2012 ...,” according to the firm’s announcement.
“The downgrade of the City of North Mankato’s rating reflects declining tax base; rapidly declining cash reserves which are expected to continue to deteriorate; underperforming special assessment revenues which have required loans from both the general fund and enterprise funds for debt service; very high debt service; very high debt service as a percent of operations; and revenue and expenditure stresses which have pressured general obligations,” Moody’s reported.
North Mankato Mayor Mark Dehen said the challenges facing the city largely resulted from the national economic downturn. The city is in the process of having its debt studied by an outside analyst, and Finance Director Clara Thorn warned the council last fall to that some enterprise funds were spending more than they were bringing in.
“Our new city administrator is working through this with Moody’s,” Dehen said of John Harrenstein, who has been on the job for two weeks, replacing longtime administrator Wendell Sande. “They’ve called attention to some issues we were aware of.”
Dehen said many of the problems cited by Moody’s were repercussions of the nation’s worst recession since the Great Depression. The falling tax base reflects reduced home assessments following the collapse of the housing bubble, and the drop in Local Government Aid from the state left many cities with tight budgets.
The city also provided utilities for new housing developments, with costs to be repaid with assessments when homes were sold, and had to shift funding from other accounts when the housing market collapsed, Dehen said.