Moody’s recent downgrade of Fargo’s bond ratings should be a wake-up call to civic leaders that the project has become too expensive to build. Sourcemedia, a financial reporting service, says the city’s general obligation credit was reduced from Aa1 to Aa2, and their appropriation rating was dropped from Aa3 to A1. Fargo’s outlook was changed from stable to negative.
The financial news company says the city’s debt could double because of the diversion project. The effect of a lower bond rating is that it will cost Fargo more to borrow money; not just for the diversion, but for other projects like parking ramps and streets.
The principal cause of the problem is that sales tax designed to pay for the diversion will not cover the local share of the project. Projected revenue sources for Cass County and Fargo could be a billion dollars short. Moody’s analysis said, “it is likely city, county and (diversion) authority debt would be supported with a combination of assessments and sales tax revenues, some of which have already been voter approved.”
Local officials have repeatedly denied that they intend to use special assessments to pay for the plan. Fargo Mayor Tim Mahoney was reprimanded after he told North Dakota legislators a year ago that they would use special assessments to pay for the project if they didn’t have enough money.
Despite Moody’s own analysis, Fargo officials blame the credit rating downgrade on a drop in construction activity in the city in 2019. Some city officials have warned that financing city operations through special assessments on new construction projects is tantamount to a pyramid financing scheme that could come crashing down. It also explains the city’s rabid desire to carve out undeveloped area from the natural flood plain to keep new special assessments coming.
The tragedy in this logic is that enticing new construction with irrational incentives is a recipe for disaster. Moody’s understands the formula. Their “negative” outlook warns that if local leaders push forward with the debt of the diversion, their credit rating may continue to crumble. Residents are at a disadvantage in understanding the situation. Local media either can’t or won’t cover serious financial issues of the community. Leaders who speak up to identify the issues are shouted down and dismissed by politicians that prefer backroom decisions.
Assessments and taxes are not backroom issues. Deals may be made in the dark, but the consequences usually happen in the light of day.