The Curious Timing Of Fargo's Economic Outlook Downgrade
This weeks' announcement that Moody's is downgrading Fargo economic outlook is likely a long time in the making, but one has to wonder "why now?"
This week, news broke that Moody’s, the credit rating agency that all of North Dakota’s state and local governments rely on for credit ratings and fiscal forcasting is downgrading the City of Fargo’s economic outlook.
A renowned institution has downgraded Fargo’s financial outlook from stable to negative, a move one city commissioner called "disastrous."
The city’s finance committee — composed of Fargo's four city commissioners and the mayor — reviewed Monday, Sept. 23, the opinion issued Sept. 13 by Moody’s Ratings . Moody’s is a financial services company that provides credit ratings for governments, companies and other entities.
Moody’s affirmed the city’s Aa2 rating, the third-highest long-term credit rating an entity can receive. It means the city’s finances are considered high quality and subject to “very low credit risk.”
Fargo's rating hasn't changed since 2020, when Moody’s downgraded the city from Aa1 to Aa2. The highest credit rating is Aaa, which means an entity has the highest quality finances with minimal risk.
The outlook downgrade is not a surprise, City Finance Director Susan Thompson said. Moody’s said it downgraded Fargo's outlook to negative, in part, because the “city’s available fund balance ratio will remain materially less than 25% of revenue." The city’s leverage ratio is also expected to be "somewhat elevated," the report said.
While this news is not a downgrade of the credit rating (yet) it is not good news for Fargo. But it should not be a shock either. For years, Fargo has been riding very close to its 10% statutory debt limit.
According to the 2023 Annual report, as recently as 2021 Fargo was carrying a 8.71% debt ratio compared to its assessed valuations of all property in the city. 10% is the absolute limit by state law (I don’t know how they got away with being at 10.59% in 2015).
Since 2021, that ratio has dropped due to several factors - the biggest of which is that the assessed valutions went from $6.8 billion in 2021 to $8.2 billion in 2023. A 22+% increase in values due to higher sales prices, annexation, new builds, and probably some creative use of “COVID money”.
For pespective, from the 10 year period from 2014 to 2023, Fargo’s total assessed value went from just over $4 billion to $8.2 billion - a more than 100% increase. So when you wonder why your property taxes are so much higher - that’s most of it right there.
If it hadn’t been for these massive increases in valutions the last few years, Fargo would likely be in much bigger trouble. (These massive valuation increases are also what has led to the automatic dollar-based property tax increases.)
When this article came out yesterday, I was reminded an OpEd I wrote back in 2015 on this very subject (ignore their misspelling of my name).
Lack Of Fiscal Sanity
In Fargo, there has been a distinct lack of fiscal sanity.
In the last decade, the most consistent voice on these issues has been formed City Commissioner Tony Gehrig, who has been criticized non-stop for trying to bring these issues to the public’s attention.
Is The Timing Designed To Be Leverage Against Measure 4?
The timing of this announcement by Moody’s is rather convinient as the City of Fargo officials, as well as many others, are compaigning against Measure 4.
In fact, the North Dakota League of Cities has been training city officials on how to campaign against Measure 4 without violating North Dakota’s Corrupt Practices Act ban on using public funds to oppose or support ballot measures.
(This is a section of law that is never enforced, if it was, organizations like the League of Cities, ND Association of Counties, ND County Auditors and Treasurers Association, ND County Commissioners Association, ND Recreation and Park Association, ND State Association of City & County Health Officials, ND Township Officers Association, and the ND School Boards Association would probably not be able to be funded with public dollars as they are and then join coalitions against ballot measures.)
Offsetting The Local Decisions That May Be Pushing YES Votes To Measure 4
Previously, I have written about decisions being made that could end up promoting yes voters on Measure 4:
Creating a narrative that Fargo’s finances are in trouble (when they have already been for a very long time) would be one way to offset these locally controlled decisions that really do not do much to deter people from vote for Measure 4.
Time will tell if it has an impact.
For more on Measure 4, read the extensive history of failed attempts to reform property taxes: