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Fargo finance staff warn Moody’s negative outlook tied to low available fund balance; debt levels also detailed
Summary
City finance staff told commissioners Moody’s placed Fargo at an AA2 rating with a negative outlook tied mainly to the city’s available fund balance; staff outlined the city’s fund structure, all-funds calculation Moody’s uses, and debt buckets and repayment sources.
Finance staff laid out the city’s fund structure and long-term obligations and said Moody’s recent credit call placed Fargo at an AA2 rating with a negative outlook because available fund balance on an all‑funds basis is below the level Moody’s prefers.
"Our current rating at September is an AA2 with a negative outlook," Finance staff said, summarizing Moody’s feedback on available fund balance and leverage. The presentation described how Moody’s compares an all‑fund available balance to total revenue and recommended a materially higher cash position to shift outlook.
The staff presentation walked commissioners through governmental and proprietary funds, special revenue and capital project funds, fiduciary funds, and debt service. Staff explained that traditional local practice compares general‑fund available balance to expenditures, but Moody’s method aggregates government funds and business‑type activities and compares available balance to total revenue. Using Moody’s approach, staff said the city would need a substantially larger cash balance to move the metric toward Moody’s 25% guideline; moving from roughly 10% to 20% under that methodology would require roughly doubling government‑fund cash balances, the presentation estimated.
Staff also reviewed the city’s long‑term borrowing. The presentation grouped debt into refunding/improvement bonds (special‑assessment backed), enterprise debt (utility and revenue bonds), appropriation debt (general‑fund supported), flood/diversion‑related debt (paid via flood sales tax/diversion authority), parking, and TIF‑related borrowing. Total debt outstanding was presented in the roughly $1 billion to $1.3 billion range on an all‑obligations basis (statement presented in thousands), and staff noted the city has averaged roughly $60 million of principal paydown annually in recent years.
Commissioners asked about the potential incremental interest savings of a higher rating and how specific categories of debt—such as special assessments tied to development projects—are treated. Staff said Moody’s gives more weight to available fund balance than to the city’s leverage and suggested strategies that include showing a plan to systematically build cash and demonstrating progress in a two‑year window could help the outlook.
Why it matters: Moody’s outlook influences investor confidence and borrowing costs across multiple city programs. Staff recommended commissioners consider a multi‑year plan that addresses available fund balance while accounting for capital needs and existing debt structures.
Votes at a glance: At the start of the meeting commissioners took routine procedural actions: a voice vote approved the meeting agenda and a subsequent voice vote approved three sets of minutes (dates referenced in the record). Both votes carried by voice vote; roll‑call tallies were not specified in the transcript.
Ending: Staff said they will return with more detailed projections after January closes and recommended commissioners discuss options at a planned February cabinet retreat and in upcoming finance committee meetings.
