MEMPHIS, Tenn. - Memphis's credit rating has been downgraded, and the confirmation came to City Hall in a letter from the State Comptroller's office to Mayor Paul Young and the City Council, Action News 5 reported Friday, August 14, 2026.
According to the station, the letter tied the downgrade to the city not bringing in enough money. It cited water meter issues that caused inaccurate billing, and rates that have not increased since January 2020. The letter noted that MLGW, which handles billing for city services, is actively replacing meters, and it referenced a rate increase the Council passed in July 2026.
The station's report does not name the rating agency, the affected bonds, or the old and new ratings. The 901 Report has not yet obtained the Comptroller's letter or a rating action notice; what the downgrade covers is the first question the record must answer.
The direction of travel, though, has been documented for more than a year. On March 4, 2025, S&P Global Ratings downgraded Memphis sanitary sewer revenue bonds to A+ from AA+ and assigned a negative outlook, citing a precipitous decline in unrestricted cash to roughly 10 days on hand, about $2.8 million as of June 30, 2024, down from more than 133 days a year earlier, per Bond Buyer reporting at the time. Moody's affirmed its Aa2 rating on the system but cut its outlook to negative. The actions covered roughly $491.3 million in debt.
The 901 Report's independent analysis of the FY2027 proposed budget documented where that pressure was heading: the Sewer Fund swinging from a $12.1 million surplus in FY26 to a projected deficit in FY27, sewer debt service interest rising 97 percent year over year, and no rate stabilization plan disclosed in the budget documentation. The analysis warned plainly that continued enterprise fund instability invites exactly this: bond rating agencies downgrading Memphis, raising the cost of every dollar the city borrows.
That is what a downgrade does. Lenders treat the city as a higher risk, and borrowing for infrastructure, equipment, and refinancing gets more expensive, a cost that lands on the same ratepayers and taxpayers whose bills the letter says have been both inaccurate and too low to sustain the system.
Why It Matters for Memphis
A credit rating is the price tag on the city's promises. When it drops, every future bond issue costs more, and the extra interest comes out of budgets that already could not fund the sewer system's deferred maintenance. The failure chain the letter describes, meters that misbill, rates frozen since January 2020, a fund sliding into deficit, was visible in the city's own budget documents. The question now is not whether the warning existed. It is why it took a downgrade letter from the state to make it official.
The Oversight Question
The city's own budget documents showed the sewer fund sliding toward deficit while debt service interest nearly doubled, and no rate stabilization plan was disclosed. Who inside the administration was tracking the rating risk, when did the agencies first signal this action, and will the Council require the quarterly fund reporting the FY2027 analysis recommended before the next bond issue prices?
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