Minneapolis returns to the market Wednesday with its second green-designated general obligation deal to finance its new public service center.
The city will take competitive bids on the $114.4 million issue that matures from 2022 to 2046. Ehlers & Associates Inc. is advising the city and Kennedy & Graven is bond counsel.
The city previously established a Climate Action Plan and Green Bond Framework in accordance with the green bond principles laid out by the International Capital Market Association in 2018 and obtained a second party opinion from Kestrel Verifiers, an accredited verifier of green, climate, and social bond principles.
The city last year sold its first-designated green bonds in a $97 million series to pay for facilities designed to support the city’s green and climate initiatives including the new center, which is now 30% completed.
“This is the second and final round of green bond financing for this project,” said Mike Abeln, the city’s director of investments, capital and debt management. “We are hoping for significant investor interest and competitive pricing for this green bond sale and believe this particular project should strongly appeal to" the environmental, social, and corporate governance market “as a very worthy standalone sustainable investment for both the city of Minneapolis and the investors in these bonds.”
The city’s deal last year received 10 competitive bids with Piper Jaffray submitting the winning bid. Piper told Ehlers that the green designation did not have a direct effect on their pricing but as the market develops that could change, Abeln said.
The new office building will house 1,300 city employees who currently work in several leased and city-owned buildings scattered around downtown Minneapolis.
“This is a multi-benefit project designed to prioritize environmental sustainability while providing a modern, new workspace to better serve residents and businesses,” Kestrel wrote in its review. “Expected outcomes from this project include a reduction in the city’s carbon footprint, greater efficiencies and improved access to public transit for the city’s employees, and a higher quality of service to the public.”
Green features of the building include natural daylighting, low-emitting materials, improved indoor air quality, indoor and outdoor water-use reduction, water metering, minimal wind exposure, and energy efficiency. The city expects a minimum of 10% additional energy savings when passive daylighting, heat exchange and recovery, and ventilation are taken into consideration.
Kestrel concluded in its opinion that the city’s project and financing, allocation and oversight is aligned with the Green Bond Principles and the United Nations Sustainable Development Goals.
The city’s climate action plan includes strategies for reducing greenhouse emissions and it intends to measure progress toward achieving its goals and aims to identify areas it’s not meeting its objectives. Managers of city-owned buildings are required to track and report energy and water use. The city adopted a plan last year to target that 100% of its enterprise electricity use come from renewable resources by the end of 2022.
Ahead of the sale, Fitch Ratings affirmed the city’s AA-plus rating and S&P Global Ratings affirmed the city’s AAA rating. Both assign stable outlooks. The city has $642 million of outstanding GO debt.
The rating reflects the city's strong revenue growth prospects driven by an expanding population and income levels, broad independent revenue-raising ability, and solid budgetary flexibility, Fitch said.
The rating also incorporates changes to the share of statewide plan net pension liabilities that are attributable to the city along with state pension reforms that are likely to improve the sustainability of Minnesota's pension systems in the near-term.
“The city has sufficient gap-closing capacity to offset revenue declines in a moderate downturn by making limited cuts to services coupled with modest reserve reductions,” Fitch added.
The city's proposed 2020 executive budget includes a 6.9% tax levy increase across all funds, including a 13.3% rise in the general fund levy, and the budgeting of $10 million of fund balance as a contingency. The property tax levy increase will raise $24.3 million in new revenues in 2020 with a focus on affordable housing initiatives, violence prevention, and inclusive economic development across all city neighborhoods with a particular focus on job training for the technology sector.
