Memphis Told the Council Its Sewer Fund Was $13 Million in the Hole. The Rating Agency Had Already Cut It.

MEMPHIS, August 18, 2026 - The City of Memphis Chief Financial Officer told the Public Works, Solid Waste and General Services Committee that the city's sanitary sewer system was carrying a negative claim on cash of about $13 million as of the previous day.

He said the system also has about $22 million invoiced out and awaiting reimbursement, the majority of it from a single federal grant, and that netting the two leaves the fund about $9 million ahead. Councilman Dr. Jeff Warren pressed the point directly at the table: if the payers do not pay, the city does not have $9 million. The Chief Financial Officer agreed those are two different things.

What the rating agency filed

The item came to committee as a State of Tennessee Adverse Debt Event Reporting Form, Notice of Credit Rating Downgrade, filed by the Finance Division. S&P Global Ratings lowered its long-term rating on the city's sanitary sewerage system revenue debt to A from A+ in a research update dated July 14, 2026. The outlook is negative.

S&P's own overview states the downgrade reflects management's weakened cash forecasting, which resulted in materially weaker liquidity, and the need for substantial interfund borrowing to support the system's cash flow needs. It states that even after approximately $37 million in interfund loans from the stormwater and debt service funds, available cash at the end of unaudited fiscal 2026 totaled $3.69 million, which it describes as extremely thin and a material credit weakness. Without the loans, S&P wrote, the system's cash position would have been negative.

The Tennessee Comptroller of the Treasury acknowledged the filing in a letter dated July 31, 2026, signed by the Director of the Division of Local Government Finance and copied to the Chief Financial Officer. That letter records the city's stated cause as reduced revenues from faulty water metering and the absence of a rate increase since January 2020, and records the remedy as meter replacement by Memphis Light, Gas and Water plus the rate ordinance the Council adopted on July 21, 2026, raising volumetric rates from $3.32 per 1,000 gallons to $4.48 per 1,000 gallons effective August 1, 2026, and to $5.60 per 1,000 gallons effective July 1, 2028.

The $37 million did not close the gap

Councilwoman Janika White told the committee that when the $37 million was requested, her understanding was that it would cover a timing gap in reimbursements. She said the fund was negative by about $1.3 million by the end of July and was now negative by roughly $13.7 million, and asked whether the problem is structural rather than a timing issue, and whether long-term projections had been run.

The Chief Financial Officer said the short answer is yes, that part of the movement is timing because the system keeps spending on projects after the fiscal year closes, and that long-term cash flow planning is underway. He said repayment of the interfund borrowing is scheduled with a $9 million payment due in June 2028 and payments of $7.6 million in each of the next four years, and that returning the fund to its prior cash position is at least a four-year project.

Councilwoman White also stated on the record that this is the second consecutive downgrade.

Councilwoman Yolanda Cooper-Sutton put four questions to the Chief Financial Officer and asked for written answers: the projected monthly revenue based on the August 2026 rate increase, the sources for those projections, the sewer fund's financing strategy in the event of a catastrophic failure, and whether the fund can afford to use its remaining grant funds or will forfeit some. She said she voted against the rate increase because she does not believe the whole story has been told. The committee chairman asked that any answers be sent to all thirteen members.

What happens next

The Chief Financial Officer committed to sending written answers to Councilwoman Cooper-Sutton's questions and, at the committee chairman's request, to all Council members. The Comptroller's letter directs city officials to notify the Division of Local Government Finance of any future change to the sewer revenue rating. No return date was set.

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