BRADENTON, Fla. — Moody’s Investors Service yesterday said that credit quality in Tennessee could be affected over the long term because of floods earlier this month that saw federal disaster declarations for 45 counties covering nearly half the state.
Despite the severity of the flooding and storm-related damages, Moody’s said it expects limited near-term impact on credit quality and anticipated no difficulties with upcoming debt-service payments. The agency maintains ratings on 112 issuers or securities in the affected area, including the state and local governments.
However, there was one exception, as Moody’s placed various obligations of the Metropolitan Government of Nashville and Davidson County on watch for possible downgrade just ahead of the planned sale of up to $775 million of general obligation bonds.
Citing the recent storm damage and an existing weak financial position, Moody’s placed the Aa1 GO rating of Nashville on watch as well as its Aa2 ratings on bonds sold by its Water and Sewer Enterprise and its District Energy System.
While the disaster declarations provide the affected counties various forms of federal assistance, and state officials have pledged additional funding, Moody’s said the magnitude of the damage is still being assessed and some local governments could be required to cover extraordinary costs while waiting for payments or absorb some portion of the costs.
“Moody’s expects a wide range of responses to these additional pressures, which have come at a time when many local governments within Tennessee face increased financial strain related to the economic downturn,” the agency said.
Reserve levels, strength of financial management, and expenditure flexibility will play a role in how effectively local governments can deal with the disaster, Moody’s said, but increasing budget pressures may be felt over the long term from reduced property tax revenues as assessments are adjusted to reflect property damage.
“As Tennessee local governments are largely property tax dependent, this could lead to gaps in funding that could further strain financial operations, depending on the number of properties affected and extent of the damage,” Moody’s said.
“Long-term credit risk to local governments includes a slowdown of the economic recovery due to the disaster,” the agency said.
“The speed with which local economies will recover is dependent on the extent to which job creation, retail activity, and home building have been adversely effected by the flooding.”