Finance Committee - January 22, 2026
The Regular Meeting of the Finance Committee of the City of Fargo, North Dakota, was held in the Commission Chambers at City Hall at 1:00 p.m., Thursday, January 22, 2026.
Commissioners present or absent were as follows:
Present: Kolpack, Piepkorn, Turnberg, Mahoney.
Absent: Strand.
Staff attending: Finance Director Susan Thompson, City Administrator Michael Redlinger, Assistant City Administrator Brenda Derrig, City Engineer Tom Knakmuhs, Planning Director Nicole Crutchfield, Assistant Planning Director Mark Williams, City Attorney Ian McLean.
Mayor Mahoney presiding.
Order of the Agenda:
Commissioner Piepkorn moved the Order of the Agenda be approved. Second by Kolpack. There was unanimous approval.
Minutes:
Commissioner Piepkorn moved the Minutes from the December 22, 2025 meeting be approved. Second by Turnberg. There was unanimous approval.
Sales Tax Collections:
Ms. Thompson said while the current data shows a decline of 3.28% in sales through October, it is important to note these figures are slightly dated as they were reported in December. This lag is largely due to the State’s reporting quirks, she said; specifically, if a month ends on a weekend, the data is pushed to the following month’s report. She said she has not yet formatted the most recent January data reflecting November sales; however, preliminary figures show a slight recovery, bringing the deficit up to a negative 2.3%.
In response to a question from Mayor Mahoney asking whether these figures are subject to further revision, Ms. Thompson said that the negative 2.3% figure is final, as it represents the actual revenue received via check. While the City is still trailing previous bench marks, she said, she is looking forward to a strong holiday season in December to help bridge the remaining gap.
Moody’s Rating: Fund Balance and Debt:
Ms. Thompson said this section of the meeting serves as a follow-up to the November discussion regarding the City’s Moody’s credit rating and the interconnected issues of debt and fund balance. To provide expert insight, she said, Steve Sharf, a director with Baker Tilly Municipal Advisors, is joining the meeting virtually. She said that while the City did receive a downgrade from Aa2 to Aa3 with a negative outlook late last year, it is important to maintain context that an Aa3 rating remains very strong and attractive from a market perspective. She said the shift in Fargo’s rating is largely driven by a revision in Moody’s methodology. Previously, she stated, the agency focused primarily on general or governmental funds; however, they have transitioned to a more holistic approach. This new framework treats a municipality as a single entity, she said, looping in utility funds such as water and sewer alongside traditional services such as public safety. By looking at these essential service enterprises together, she said, Moody’s now applies new metrics that have placed the City’s fund balance and debt ratios under a brighter spotlight. Ultimately, Moody’s has identified fund balance and leverage as the primary indicators for future movement, she said. In their assessment, an upgrade would likely require an improved fund balance and reduced debt ratios, while further erosion of these figures could trigger a subsequent downgrade, she said. While the City should not make financial decisions solely to please rating agencies, she stated, these metrics serve as a canary in the coal mine for the City’s long-term financial sustainability. Monitoring these indicators will help ensure ongoing financial vitality and stability, she said.
The Mayor raised a concern regarding how Moody’s evaluates significant capital investments, specifically the City’s decision to upgrade its water and wastewater plants to serve as a regional center. He said while this strategy successfully increased revenue by servicing neighboring cities, it also necessitated a substantial financial outlay. He said the inherent conflict is to satisfy Moody’s desire for a higher fund balance, the City might be forced to increase utility rates, which residents could perceive as squirreling away unnecessary funds.
Mr. Sharf said that while Moody's recognizes the City's growth and strategic investments in its qualitative opinion, its formal methodology is strictly metric-driven. As the City’s operations scale up, he said, the fund balance ratios such as days cash on hand, have not kept pace with the increased operating costs. He said Moody’s must apply these ratios consistently across all issuers to maintain the integrity of its ratings. Consequently, he said, even though the City’s regional strategy is financially sound, the resulting downward trend in liquidity metrics triggered a category change. In short, he stated, while Moody’s acknowledges the City’s low unemployment and regional growth as positives, those thematic strengths cannot override the specific mathematical requirements of their fund balance and debt formulas.
In response to a question from Commissioner Kolpack asking how enterprise funds are treated in credit calculations, questioning why utility debt is included in the City's total debt profile while utility reserve funds are often excluded from the fund balance, Mr. Sharf said this distinction depends on the flavor of the reserve and the level of restriction placed upon it. If funds are strictly designated for debt service, he said, Moody’s does not count them toward operating sustainability due to the fact that they are not available to cover daily costs. However, he said, unrestricted reserves that support operations are factored into the credit consideration.
In response to a question from Commissioner Kolpack asking the specific requirements to return to an Aa2 rating, Mr. Sharf said the agency specifically references a sustained fund balance in excess of 25% as a primary component for a potential upgrade.
Commissioner Piepkorn said the primary driver of the City's $1.35 billion debt is the historical practice of the City financing infrastructure for new developments through special assessments. For more than 50 years, he said, the taxpayers of Fargo have essentially acted as financiers for private developers. While this practice is deeply ingrained, he stated, it represents a significant risk that needs to be shifted back to the developers. To avoid devastating the local development market, he said, any change to this model must be implemented gradually through a long-range plan, as the current level of taxpayer-backed financing is no longer sustainable. He said a second concern involves the classification of the Airport. Changes in how the Airport is defined, which is currently viewed as a standalone entity, he stated, have negatively impacted the City's fund balance and debt profile. Clarifying the ownership and organizational structure of the Airport is a necessary step in refining the City's financial outlook, he said. It is necessary to curb overall spending, he said and while large-scale projects such as the Diversion, the water supply and the Fargodome are considered excellent long-term investments with favorable interest rates, the sheer volume of these obligations contributes heavily to the City's debt burden and there needs to be actionable strategies to improve the City's debt standing immediately.
Ms. Thompson said due to the new contract with the Airport, they are a component unit rather than an enterprise fund, which is why that money does not show up on the year-end financial statement that Moody's uses.
Mayor Mahoney said the difficulty is if the Airport defaults on its debt, the City is responsible, for example the $40 million for the parking ramp. The City has the risk but not the advantage of the fund balance and is there an arrangement that could be written to bring it back to how it was.
Commissioner Piepkorn said the City Attorney needs to look at that. He said the Airport is an advisory committee to the City Commission, which appoints the Board members. To say they are a standalone entity is not correct, he said.
Ms. Thompson said she does not like to call it reserves due to the fact that it sounds too much like cash. Fund balance is a financial calculation of the difference between assets and liabilities at a specific time, she said.
• Example 1 (Bond Reserves): Bondholders often require the City to reserve the last year's payment in cash. The City has the cash; however, it cannot be used for anything else.
• Example 2 (Special Assessments): People prepay their assessments and the City holds that cash to pay the debt; however, it does not count toward the spendable fund balance.
Mr. Sharf said the immediate priority is to stabilize the current rating and remove the negative outlook to prevent further downgrades. Achieving this requires a clear roadmap for the fund balance, including moving toward a 15% fund balance by 2027 and 20-25% by 2030; reaching a 25% reserve would require approximately $63 million in cash, creating an opportunity cost debate between holding cash and funding projects. He said the City needs to look at selling idle assets, managing general fund subsidies for transit and parking, and potentially implementing modest utility rate increases to build necessary margins.
Ms. Thompson said that while the debt total is high, it is diverse and well-structured. Much of the utility debt consists of State Revolving Fund (SRF) loans, she said, which feature 2% interest rates and occasional loan forgiveness, benefits attributed to strong State-level advocacy. She said a portion of the reported debt includes non-traditional accounting liabilities, such as pension obligations and long-term leases, which are paper entries rather than active borrowing. By strategically paying down debt where cash prepayments exist and formalizing a new fund balance policy, she stated, the City aims to prove to rating agencies that it has both the capacity and the discipline to manage its growth sustainably.
In response to a question from Commissioner Piepkorn asking about personnel liabilities and the City’s leave policies, Ms. Thompson said the City recently transitioned from an open-ended leave system to a more defined structure to limit unfunded liabilities. Vacation is now capped at 320 hours, she said and recent GASB accounting changes require the City to record sick leave liabilities as well, which are paid out at 40% only after an employee reaches a 900-hour threshold. She said these paper liabilities represent money the City would owe if employees left, making it a critical metric for long-term financial planning. She said the City also has several specific buckets of debt that are set to shift or be managed through dedicated revenue streams:
1. The Diversion Debt Shift
A significant win for the City’s balance sheet is the upcoming transfer of $41 million in debt originally taken out on behalf of the Diversion Authority in 2013-2014. Now that the Diversion Authority can hold its own debt, they plan to refinance in 2026 and take this obligation under their own name, which will immediately lower the City’s reported debt levels.
2. General Obligation and Special Revenue Debt:
The City holds approximately $48 million in debt for essential facilities, including City Hall, several Fire stations and the Police headquarters. While this currently draws from the General Fund, future projects such as the proposed Fire training facility and Convention Center are intended to be self-funded. The Fire facility is modeled to be supported by the Public Safety Sales Tax, while the Convention Center would rely on a dedicated hotel tax. However, the Commission cautioned that these projects must stay strictly within their tax revenue projections to avoid falling back on the General Fund.
3. Enterprise and Development Debt:
Debt for the Mercantile, RoCo and NP ramps is currently backstopped by the General Fund, as parking operations primarily cover only operating expenses, not debt service. The City is currently seeking a new management partner to leverage technology and improve revenue.
Development debt, such as that for Block 9, is repaid first through Tax Increment Financing (TIF) revenue, with developers covering any remaining balance.
The City pays down about $50 million in debt service annually but typically issues $35–$55 million in new bonds for infrastructure, creating a cycle the City hopes to moderate by setting stricter targets for developer-requested projects.
2025 Overtime:
Ms. Thompson reviewed overtime history, which she said remains lower than regional peers at approximately 3.2% to 3.5% of gross pay. While some Commissioners have expressed concern over burnout in high-demand departments such as Police and Public Works, especially during snow removal, Administration noted that overtime is often more cost-effective than hiring seasonal staff who would be underutilized in off-peak months. Moving forward, she said, the City will continue to balance its staffing for success model against the constraints of the property tax cap and current revenue conditions.
Sewer Repair Program:
City Engineer Tom Knakmuhs said to address the rising costs and infrastructure challenges associated with the City’s aging sewer system, a proposal has been introduced to transition from the current reactive sewer service repair assistance policy to a more proactive, City-led lining program. He said since 2000, the City has provided financial assistance to residential property owners for sewer failures within the public right-of-way, primarily to help offset the high costs of street excavation and pavement restoration. However, in the last decade, he stated, participation in this program has ballooned from 50 to 200 repairs annually, causing the City’s annual costs to surge from $200,000.00 to over $1.1 million. This one-off repair model is increasingly unsustainable, he said, as it results in a patchwork of roadway cuts that degrade street quality and fails to address the underlying condition of adjacent sewer mains and manholes. Building on the success of a 2018 policy change that mandated service line replacements during street reconstruction, he said, a recent cured-in-place lining pilot project in north Fargo demonstrated a superior alternative. This technology allows robotic equipment to rehabilitate sewer mains and service lines from the inside, he stated, requiring zero excavation or neighborhood disruption. The pilot successfully lined 11,000 feet of main and 300 services at a significantly lower cost to homeowners, he said, averaging an assessment of $2,500.00 compared to the $12,500.00 typically seen under the traditional repair model. Additionally, he said, the structural liners provide a life expectancy comparable to new PVC pipe, effectively modernizing the infrastructure without the need for trenching. Under the new proposal, he said, the City would phase out financial participation in individual, one-off sewer repairs outside of engineered projects. Instead, the $1 million in annual funding would be redirected toward a comprehensive, annual lining program targeting the City's 140 miles of aging clay and concrete pipes, he said. While the City would no longer co-pay for emergency individual repairs, it would continue to offer property owners the option to special assess repair costs over 15 years, he stated, with additional income-based assistance available for those who qualify. This shift aims to move the City from a reactive maintenance stance to a methodical, engineering-led approach that protects roadways, saves taxpayer money and provides a more efficient long-term solution for residents, he said.
Parking RFP Update:
Planning Director Nicole Crutchfield said a selection committee representing several key City departments, including IT, Finance, Facilities, Police and Public Works, is currently providing an update on the progress of the Request for Proposals (RFP) for a new parking management consultant. She said this process follows a comprehensive study launched in April 2025 that evaluated ramp capacity, program models and industry best practices. The goal is to overhaul the City’s current management contract, she said, which has been in place with Interstate Parking since 2014. The RFP received five competitive applications, she said, which the committee has since shortlisted to three finalists. These candidates will undergo intensive interviews next week, she said, with a final contract recommendation expected within the next 60 days. Beyond the selection of a manager, she said, the committee emphasized the importance of aligning the parking program with the City’s evolving financial goals and long-term vision. As the program shifts toward more modern management practices, she said, staff will look to leadership for feedback to guide future operations. She said the new NP Ramp opened about six weeks ago and while the City has received some complaints regarding its current appearance, it was noted that it remains a construction zone that will be significantly enhanced once the adjacent theater and apartment projects are completed. The committee remains focused on transitioning from the planning stages of the October parking study into active, long-term operational changes, she said.
Adjourn:
The meeting adjourned at 2:28 o’clock p.m.