Moody's Ratings downgraded Shelby County, Tenn.'s issuer and general obligation ratings to Aa2 from Aa1, citing lower reserves and liquidity.
The agency maintained its stable outlook and left unchanged the county's VMIG 1 short-term enhanced rating on its variable rate demand bonds.
As of June 30, 2025, the county had $1.1 billion in debt outstanding.
The downgrade "reflects a weakening of the county's financial position, including materially lower reserves and liquidity that are no longer commensurate with the Aa1 rating level," Moody's said. "The county's weakened liquidity has increased its reliance on interim cash flow borrowing and we expect reserve and liquidity recovery to be slow, with a low likelihood of returning to pre-fiscal 2025 levels within the next two years."
By June 30, 2025, increased public safety costs pushed available fund balances down to 15.5% of revenue, excluding bond proceeds in the capital project funds, Moody's said.
The government has adopted measures, including a property tax increase in fiscal 2027, disciplined budgeting practices and efforts to rebuild reserves, but Moody's said, "the pace and durability of financial recovery remain uncertain."
The county's liquidity position has also declined, resulting in internal borrowing from its debt service fund in fiscal 2026 and planned short-term borrowing in fiscal 2027.
The county, which encompasses
Shelby County government representatives didn't immediately respond to a request for a comment.
The county's debt is rated AA-plus by S&P Global Ratings, which lowered the outlook to negative from stable in February.
