Fargo credit outlook takes a hit, increasing pressure for budget cuts

The respected national financial firm Moody’s has lowered the city of Fargo’s credit outlook from stable to negative, increasing pressure on city commissioners to take another look at cuts to a 2025 budget originally set to increase by 11 percent. The city commissioner leading the charge to pare back $13 million of increased spending seized on the development, The Forum notes, calling it “disastrous.”

[Fargo City Commissioner Dave] Piepkorn called the downgrade from Moody’s a “huge deal” and a reflection of the city’s finances, administration and leadership.

“This is an emergency,” he said. “We need to change. We need to cut spending today.”

The downgrade in outlook does not affect the city’s credit rating, which remains strong after being lowered a notch in 2020. City hall took the news in stride.

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.

“The outlook revision to negative is driven by an available fund balance that will remain well below the city’s historical average and medians for the rating category despite some improvement in fiscal 2023,” the Moody’s Ratings report said.

But Moody’s warned that could change, depending on the city’s progress in replenishing its depleted reserves.

Fargo’s savings dropped in recent years to 10-year lows, according to reporting from The Forum. That caused greater budget shortfalls than normal.

“I think it was Moody’s opportunity to say, ‘Hey, we’re watching, and we’re going to keep watching, and you need to make some progress,'” Thompson said.

City commissioners will vote on a final 2025 budget on September 30. The battle over potential cuts could come down to the wire with budget hawk Piepkorn proposing a laundry list of more substantial reductions.

Piepkorn said he wants, at most, a 3% budget increase. On Monday, he advocated for more spending cuts, on top of the city’s proposed elimination of the Diversity, Equity and Inclusion Department. They city also made staffing cuts to Fargo Cass Public Health.

Piepkorn demanded the city close its Downtown Engagement Center, where people experiencing homelessness receive services. He also proposed a 3% cap to cost-of-living raises, cuts to the communications department and Matbus, and a freeze on fire department wages.

Fargo residents can also weigh in with their ideas on cutting the city budget. Just click on this link to American Experiment’s “Fund Fargo Needs, Not Wants” campaign to share comments and cost-cutting suggestions with city hall ahead of the decisive vote next week.