Allen E. Hoppe, CFA, CTP,
Director - Banking, Investments and Debt
The City of Minneapolis' 'AAA' IDR and GO ratings reflect the city's 'aaa' financial resilience given a 'high midrange' level of budgetary flexibility and Fitch's expectations that general fund reserves will be maintained at or above 10% of spending and transfers out. The ratings also incorporate 'strong' demographic level metrics driven by high levels of educational attainment and a history of relatively low unemployment rates and a 'midrange' long-term liability composite. The ratings also reflect the application of a +1 notch additional analytical factor for economic and institutional strength due to the city's role as a vital component of the Minneapolis-St. Paul-Bloomington metropolitan statistical area (MSA), which contributes 1.4% to U.S. GDP.
--Sustained declines in financial resilience leading to general fund reserves falling to below 10% of spending and transfers out;
--Marked deterioration of demographic and economic metrics;
--Material increase in long-term liabilities assuming current levels of personal income, governmental revenues and spending.
--Not applicable given the 'AAA' ratings.
The bonds are general obligations of the city, backed by the city's full faith and credit and unlimited ad valorem taxing power. To pay debt service, the city is obligated to levy a tax without limit as to rate or amount on all taxable property within the city.
The Local Government Rating Model generates Model Implied Ratings which communicate the issuer's credit quality relative to Fitch's local government rating portfolio (the Model Implied Rating will be the IDR except in certain circumstances explained in the applicable criteria). The Model Implied Rating is expressed via a numerical value calibrated to Fitch's long-term rating scale that ranges from 10.0 or higher ('AAA'), 9.0 ('AA+'), 8.0 ('AA'), and so forth down to 1.0 ('BBB-' and below).
Model Implied Ratings reflect the combination of issuer-specific metrics and assessments to generate a Metric Profile, and a structured framework to account for Additional Analytical Factors not captured in the Metric Profile that can either mitigate or exacerbate credit risks. Additional Analytical Factors are reflected in notching from the Metric Profile and are capped at +/-3 notches.
Minneapolis Model Implied Rating: 'AAA' (Numerical Value: 11.27)
-- Metric Profile: 'AAA' (Numerical Value: 10.27)
-- Net Additional Analytical Factor Notching: +1.0
Individual Additional Analytical Notching Factors:
-- Economic and Institutional Strength: +1.0
Minneapolis' Model Implied Rating is 'AAA'. The associated numerical value of 11.27 is at the upper end of the range for its current 'AAA' rating.
Minneapolis' financial resilience is driven by the combination of its 'High' revenue control assessment and 'Midrange' expenditure control assessment, culminating in a 'High Midrange' budgetary flexibility assessment.
-- Revenue control assessment: High
-- Expenditure control assessment: Midrange
-- Budgetary flexibility assessment: High Midrange
-- Minimum fund balance for current financial resilience assessment: >=10.0%
-- Current year fund balance to expenditure ratio: 30.9% (2022)
-- Five-year low fund balance to expenditure ratio: 20.7% (2022)
Revenue Volatility - 'Strongest'
Minneapolis' weakest historic three-year revenue performance is neutral to the Model Implied Rating.
The revenue volatility metric is an estimate of potential revenue volatility based on the issuer's historical experience relative to the median for the Fitch-rated local government portfolio. The metric helps to differentiate issuers by the scale of revenue loss that would have to be addressed through revenue raising, cost controls or utilization of reserves through economic cycles.
-- Lowest three-year revenue performance (based on revenues dating back to 2005): 3.0% increase for the three-year period ending fiscal 2015
-- Median issuer decline: -4.7% (2022)
Population Trend - 'Midrange'
Based on the median of 10-year annual percentage change in population, Minneapolis' population trend is assessed as 'Midrange'.
Population trend: 1.0% Analyst Input (53rd percentile) (vs. 1.0% 2021 median of 10-year annual percentage change in population)
Unemployment, Educational Attainment and MHI Level - 'Strong'
The overall strength of Minneapolis' demographic and economic level indicators (unemployment rate, educational attainment, median household income [MHI]) in 2022 are assessed as 'Strong' on a composite basis, performing at the 74th percentile of Fitch's local government rating portfolio. This is due to very high education attainment levels and very low unemployment rate offsetting midrange median-issuer indexed adjusted MHI.
-- Unemployment rate as a percentage of national rate: 75.0% Analyst Input (83rd percentile) (vs. 69.4% 2022), relative to the national rate of 3.6%
-- Percent of population with a bachelor's degree or higher: 53.5% Analyst Input (91st percentile) (vs. 52.6% 2021 Actual)
-- MHI as a percent of the portfolio median: 97.9% Analyst Input (47th percentile) (vs. 98.1% 2021 Actual)
Economic Concentration and Population Size - 'Strongest'
Minneapolis' population in 2021 was of sufficient size and the economy was sufficiently diversified to qualify for Fitch's highest overall size/diversification category.
The composite metric acts asymmetrically, with most issuers (above the 15th percentile for each metric) sufficiently diversified to minimize risks associated with small population and economic concentration. Downward effects of the metric on the Metric Profile are most pronounced for the least economically diverse issuers (in the 5th percentile for the metric or lower). The economic concentration percentage shown below is defined as the sum of the absolute deviation of the percentage of personal income by major economic sectors relative to the U.S. distribution.
-- Population size: 422,003 Analyst Input (above the 15th percentile) (vs. 427,806 2021 Actual)
-- Economic concentration: 32.2% Analyst Input (above the 15th percentile) (vs. 32.8% 2022 Actual)
Demographic and Economic Strength Additional Analytical Factors and Notching: +1.0 notch (for Economic and Institutional Strength)
Minneapolis is a vital component of the Minneapolis-St. Paul-Bloomington MSA, the 15th largest MSA in the country in terms of GDP contribution at 1.4% of U.S. GDP as of 2022. The city is home to several large corporation headquarters and is an important contributor to the MSA which had job levels of approximately 2 million in May 2024, according to the Bureau of Labor Statistics.
The most recently available data was used for demographic and economic metrics.
Long-Term Liability Burden - 'Midrange'
Minneapolis' liabilities to governmental revenue remain strong while carrying costs to governmental expenditures and liabilities to personal income remain midrange. The long-term liability composite metric in 2022 is at the 58th percentile, roughly in line with Fitch's local government rating portfolio.
-- Liabilities to personal income: 4.5% Analyst Input (58th percentile) (vs. 4.9% 2022 Actual)
-- Liabilities to governmental revenue: 155.8% Analyst Input (61st percentile) (vs. 168.4% 2022 Actual)
-- Carrying costs to governmental expenditures: 14.0% (2022) (56th percentile)
Direct debt was adjusted with debt issued and amortized since the most recently available audit (2022).
Analyst inputs reflect new debt issued and debt amortized in fiscal 2023.
Minneapolis is the largest city in the state of Minnesota. Population growth has been strong as educated, younger workers have been attracted to the diverse employment opportunities in the city, as well as to the city's amenities and cultural attractions and easy commutability. Along with its sister city of St. Paul, Minneapolis forms the core for the second-largest economic center in the U.S. Midwest, after Chicago.
The city's broad and diverse economic base benefits from major employers in the stable health care, higher education and state and county government sectors. Minneapolis's economy is very diverse. Major employers include entities in health care, banking, higher education and the retail trade. The city also includes a significant public-sector sector given the proximity of the state government.
The five largest employers in the city are the University of Minnesota (17,691), Allina Health (10,856), Target Corporation (8,500), the Hennepin Health Care (7,111) and Wells Fargo Bank (7,000).