MEMPHIS, TN — The City of Memphis has received a credit rating downgrade, raising concerns about the city’s financial position and potentially increasing the cost of borrowing for future projects.
The Tennessee State Comptroller’s Office confirmed the downgrade in a letter sent to Memphis Mayor Paul Young and members of the Memphis City Council. According to the letter, the city has not been generating enough revenue, with problems involving water-meter billing contributing to the financial concerns.
Water-meter issues have resulted in inaccurate billing for some Memphis Light, Gas and Water customers. MLGW is working to replace affected meters, but the problems have contributed to challenges in collecting the revenue expected from the city’s water system.
Another factor cited in the downgrade is that water rates had not been increased since January 2020. The Memphis City Council approved a water-rate increase in July as the city works to address the financial problems facing the system.
The downgrade means Memphis is viewed as a greater financial risk by lenders. That can result in higher interest costs when the city borrows money, potentially making future infrastructure projects and other capital needs more expensive. The development comes as Memphis continues to deal with financial pressure involving its utility systems. The city’s sanitary sewer system has faced credit concerns for more than a year. In March 2025, S&P Global Ratings downgraded Memphis sanitary sewer revenue bonds from AA+ to A+, citing a sharp decline in the system’s unrestricted cash position and concerns about its liquidity. Moody’s retained its Aa2 rating at the time but changed its outlook from stable to negative.
The 2025 action involved approximately $491.3 million in debt and reflected concerns about the sewer system’s ability to maintain adequate financial reserves while dealing with aging infrastructure and increased capital spending. S&P also noted that sewer rates had not been adjusted since 2020.
The latest downgrade adds another financial challenge for Memphis as city officials attempt to balance infrastructure needs with the cost of providing services to residents. The city maintains a debt management operation responsible for managing its debt portfolio, communicating with bond-rating agencies and monitoring factors that could affect access to capital markets.
For Memphis residents, the significance of the downgrade may ultimately be felt through the city’s ability to finance major projects. Higher borrowing costs can place additional pressure on future budgets, particularly as Memphis faces substantial needs involving water, sewer infrastructure and other public services.
City officials have already taken steps to address some of the concerns, including the water-rate increase approved in July and the ongoing replacement of problematic meters. The effectiveness of those measures will likely be important as Memphis works to restore its financial position and maintain the confidence of lenders and rating agencies.
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