Metro's credit downgraded by Moody's rating agency

A major municipal bond rating agency has downgraded Metro government's credit, reflecting the city's "above average debt burden."

Moody's Investors Service also cited two other financial and strategic challenges for Metro: ongoing subsidies for the city's hospital authority and vulnerability to public referendums for some property tax increases.

But a top aide to Mayor Karl Dean said the finding won't necessarily slow the administration's building and borrowing plans after more than six years of ambitious growth, highlighted by a new convention center, a new baseball stadium and a controversial mass transit proposal. The administration expects to send a capital spending plan to the Metro Council this spring.

"We've got to keep moving forward," Metro Finance Director Rich Riebeling said. "And we can afford it."

Moody's, which recently updated its local government rating methods, announced late Monday afternoon that it has downgraded Metro's $2.2 billion in outstanding general obligation bonds from an AA1 rating to the next-highest level, AA2. Local governments pay off general obligation bonds with property tax revenues.

More details: See Moody's findings about Metro government's bond rating.

Moody's also downgraded the Metro Sports Authority's outstanding debt of $157 million and a $419 million series of Metro Convention Center Authority bonds from AA2 to AA3, though it said the outlook for all the bonds is stable. The highest possible bond rating is AAA.

"The good news is we've got a stable outlook," said Metro Councilwoman Emily Evans, a former municipal bond underwriter who has often criticized the Dean administration's fiscal approach. "The bad news is that it's a downgrade, and it could be followed by other downgrades in the future if we don't restrain our spending."

Moody's indicated the AA2 rating is still strong, saying in a news release that it shows "Metro's favorable overall economic factors given the city's position as the state capital and regional economic center, stable financial position with below average reserve levels and manageable debt levels."

The rating firm also said the stable outlook for all outstanding bonds "reflects our expectation that Metro's regional tax base will continue to grow and provide the necessary revenues to support ongoing governmental operations, including annual financial support to Metro's Hospital Authority."

The city is subsidizing Nashville General Hospital at Meharry to the tune of $33.5 million a year. The council recently approved Dean's plan to privatize two other hospital authority facilities.

Deciding what's affordable

A ratings downgrade can make it more expensive for a city to borrow money. But Riebeling said Nashville remains in a strong position and wouldn't be deterred from borrowing to finance projects such as the Amp, the bus rapid transit proposal that has become a political lightning rod.

"You'd always rather go up than down," Riebeling said. "But as long as we're in a strong AA category, we've got to judge what's critical for the city and what we can afford."

He said Moody's saw more debt than it was comfortable with, but "we feel confident that we've got sources (of funding) to pay for all of that."

While the city plans to use a group of tourist-targeting revenue streams to pay off the debt on the $598 million Music City Center, which opened last spring, it could be forced to use "non-tax revenues" in its general fund — money collected from fees, licenses, permits and the like — if the tourism dollars ever fall short of debt payment requirements.

Reach Michael Cass at 615-259-8838 and on Twitter @tnmetro.