The smallest county in metropolitan Chattanooga took the biggest hit among Tennessee’s 95 counties this week when a major ratings service cut its financial grade.
Standard & Poor’s reduced the bond rating for Sequatchie County from “A plus” to “A” to reflect what S&P analysts said was “the county’s weakening financial position.” S&P said the prospect of unfunded ambulance expenses and the drop in fund reserves in four of the past five years caused the drop in ratings for Sequatchie County’s government debt.
S&P reduced its top AAA rating for U.S. treasurys and federal agencies such as the Tennessee Valley Authority in the past week. But the ratings service didn’t lower its assessments for most non-federal debt.
“State and local government ratings are not directly constrained by that of the U.S.,” Gabriel Petek, an S&P analyst in San Francisco, said in a report released this week.
But Sequatchie County, the smallest of the six counties in metro Chattanooga, was hit with a ratings drop and negative outlook on its 2008 bond issue for the county schools.
Sequatchie County Mayor Claude Lewis said the lower rating could push up the rate on some of the county’s existing variable debt. But neither the county nor the school system has any immediate plans to issue more debt. Lewis said.
“These rating cuts happened to the U.S. government, TVA and a lot of other people, but it still did surprise me,” he said. “Hopefully, we can revisit this in another year and get a better rating.”
Lewis said the county is trying to recruit a new manufacturer to help replace part of the more than 700 jobs lost in the closing of the county’s two biggest manufacturers — Tecumseh Power Co., in 2008 and Seymour Tubing in 2009.
S&P said there is a 1 in 3 chance that Sequatchie County may not have budgeted enough this year to cover the costs of the county’s ambulance service, which could drain county reserves that already have been cut in four of the past five years.
“The negative outlook reflects our concern that continued support for ambulance services could lead to further declines in the county’s financial position within the next two years,” Standard & Poor’s credit analyst Russell Bryce said. “However, if the county’s financial position remains at a level we consider good, we could revise the outlook to stable.”