St. Paul Council hears bonding 101: $660.7M debt outstanding, legal limit far higher than practical capacity

City finance officials told the St. Paul City Council that municipal bonds function like long-term loans and that the city currently carries $660,700,000 in principal outstanding — $249,000,000 in general-obligation bonds and $411,700,000 in revenue bonds — while legal debt limits set by state statute are far higher than the levels city staff say would be prudent to approach.

The briefing, delivered by Neil Younghands, debt manager in the Office of Financial Services, and Sarah Brown, city treasurer, summarized how bonds are underwritten, the difference between general-obligation (GO) and revenue bonds, the city’s current bond programs and the three practical constraints on additional borrowing: state legal debt limits, credit ratings and the city’s property-tax debt levy.

City staff said GO bonds are backed by the property-tax debt levy and historically have funded programs such as the Capital Improvement Bond (CIB) program, streets and mill-and-overlay work; revenue bonds are repaid from specific revenue streams such as sewer, water, parking and a half-cent sales tax. Younghands told the council that the city sells bonds competitively to banks and underwriters and typically awards to the bidder with the lowest true interest cost.

Why it matters: although state statute (chapter 475) limits city debt to 3 1/3 percent of market value — which the presentation translated into a statutory ceiling of about $1.94 billion using an assessor estimate of $35.8 billion in market value — staff said other factors make that theoretical maximum impractical. Those constraints include the city’s AAA ratings from S&P and Fitch on GO bonds, the size of pension and other long-term liabilities, and a structurally imbalanced debt-service fund that currently requires other revenue sources to cover the gap between annual GO debt service and the property-tax debt levy.

Younghands and Brown laid out recent activity and near-term financing plans. City bond sales completed earlier this year included: $17,600,000 in GO various-purpose bonds; $35,400,000 in street reconstruction and refunding bonds; and $16,200,000 in parking revenue and refunding bonds. Planned near-term financings include further tranches for the Lake McCarran’s water treatment plant project and the lead service line replacement program and projected 2026 issuances such as $15,600,000 in CIB bonds (routine annual issuance plus unissued amounts), $2,000,000 in GO capital notes, $15,500,000 in street reconstruction (including $12,000,000 street reconstruction and $3,500,000 mill and overlay), $7,000,000 in sewer revenue bonds and a $6,500,000 PFA note (final tranche for Lake McCarran’s project).

Council members pressed staff on several specifics: how GO and revenue bonds differ, which revenue streams are pledged for different credits, the makeup and typical terms of bond programs (GOCIB 10 years, street reconstruction 20 years, capital notes typically 3 years), why revenue-backed debt can be larger in dollar terms (water and sewer utilities issue larger financings tied to ratepayer charges), and whether the city has internal debt guidelines beyond state statute. Staff said the city does not have formal internal debt ceilings in policy but is considering drafting debt guidelines and uses a debt model projecting 15–20 years to examine impacts on the property-tax debt levy.

Credit rating drivers and constraints: staff summarized S&P and Fitch factors used in rating assessments — economy, financial performance, reserves and liquidity, management and debt and liabilities — and presented the city's S&P scorecard. Saint Paul’s economy and management metrics rated strongly; debt and contingent liabilities (including pension obligations) rated weaker relative to other AAA-rated Minnesota peers. Staff said, based on Fitch and S&P methodologies, the city could add on the order of a couple hundred million dollars of additional long-term liabilities before a rating downgrade would be likely, but cautioned that estimates vary by methodology and market conditions.

Budgetary constraint: staff described a structural gap between annual GO debt service and the property-tax debt levy. To bring the debt-service fund toward balance, staff recommended staged increases to the property-tax debt levy over several years (examples in the presentation included $1.5 million annual increases from 2026–2029, then smaller increases thereafter). Using the city’s debt model, staff estimated the property-tax levy impact of incremental issuances: for example, a one-time $1 million increase in CIB issuance would raise annual debt-levy requirements by roughly $130,000 for a 10-year GO schedule (an ongoing $1 million change would be larger). Street reconstruction bonds (20-year term) amortize differently: a $1 million one-time increase would translate to roughly $68,000 to the levy in the near term and about $680,000 if made ongoing.

Council members asked staff to return with follow-ups: a more detailed list of GEO bond categories and statutory differences (public safety, library, street reconstruction, tax-increment GEO buckets); historical context on CIB annual issuance levels; deeper information from rating agencies and the municipal advisor about what it would take to change the city’s rating; a longer-term debt roll-off schedule; and possible internal debt-policy options. Staff offered to share rating-methodology detail, HRA debt information (not currently included in the city-only presentation), and department-level cash-flow estimates used in the debt model.

Ending: Finance staff said they will supply follow-up material by email and work with municipal advisors and bond counsel as needed. Council members signaled interest in additional briefings and requested itemized clarifications (historical issuance levels, fund roll-offs, and what specific actions would materially affect the city’s credit profile).