Required spending leads to downgrade of some Metro bonds

New York-based Fitch Ratings last week downgraded $210 million in outstanding Metro Water and Sewer revenue bonds from AA to AA-, with the agency citing “a rapid escalation in planned capital spending” following a recent regulatory consent decree requiring the city to upgrade some facilities. 

The agency still characterizes the AA- rating as stable.

Metro Finance Director Richard Riebeling downplayed the seriousness of the downgrade. He said the AA- rating doesn’t have any effect on the ability of Metro to borrow and that it’s “not a major issue.”

“It’s a solid rating,” Reibeling said. “We have a strong rating on the water and sewer department. I think they’re concerned about the amount of debt that we may have issued down the road to come to the consent decree with the [U.S. Environmental Protection Agency] and things of that nature, which are all legitimate questions.

“Fitch is taking a very conservative approach to municipal governments, in general,” he said. “It’s much more aggressive in terms of looking at downgrading ... It’s not uncommon.”

In 2009, the Metro Council approved a water and sewer rate hike to build revenue to update Davidson County’s outdated water infrastructure, which is necessary in keeping with federal environmental mandates. The three-year adjustment started in the summer of 2009 with a 7.8 percent increase. The changes also brought in a first-ever $3 stormwater fee.

The rate increase has resulted in an average $3.76 increase on the bills of Metro ratepayers. Before 2009, the city’s last rate increase was in 1996. 

A consulting firm in 2006 recommended implementing a water and sewer rate hike that was more than twice the 7.8 percent hike during the first year of the three-year adjustment.

Metro officials are eying $500 million in capital projects for Nashville’s water and sewer system over the next five years, including more than $10 million in stormwater capital project.