Moody’s Ratings upgrades the City of Gallatin, TN's issuer rating to Aa1

Moody's Ratings (Moody's) has upgraded the City of Gallatin, TN's issuer rating to Aa1 from Aa2. Concurrently, we have affirmed the city's Electric Enterprise's Aa3 revenue rating and the city's Water and Sewer Enterprise's Aa3 revenue ratings. At the end of fiscal 2025, the city has approximately $128 million of debt outstanding.

The upgrade of Gallatin's issuer rating to Aa1 reflects the city's growing tax base, robust reserve levels and manageable debt burden.

RATINGS RATIONALE

The Aa1 issuer rating reflects the City of Gallatin's exceptionally strong financial position, sustained operating performance, rapidly expanding tax base, and low overall debt burden. Proximity to the Metropolitan Government of Nashville and Davidson County, TN (Aa2/Stable) has supported economic outperformance, with five-year real GDP growth exceeding the U.S. average by approximately 2.6%, driven by significant residential, commercial, and industrial development. This growth is reflected in a sharp increase in full value per capita to $225,000 in 2025 from $129,000 in 2022.

Gallatin maintains a very strong financial position, with $127.4 million of available fund balance in FY2025, equal to a 61.1% available fund balance ratio, and net unrestricted cash equal to 67.7% of revenues. The General Fund has generated recurring operating surpluses since FY2020, supporting ongoing reserve growth and underscoring prudent financial management. Management does not anticipate near-term reserve use and expects reserves to continue increasing. While the city's debt profile is expected to rise modestly over the medium term, primarily related to business-type activities, overall long-term liabilities remain manageable.

The Aa3 electric revenue rating reflects strong debt service coverage and improving liquidity, with FY2025 coverage of 3.59 times. Growing customer counts and implemented rate increases have supported rising reserves, despite planned capital spending and potential future borrowing for a new substation. Even with higher leverage, debt levels are expected to remain manageable.

The Aa3 water and sewer revenue rating reflects strong reserves and solid coverage, balanced against an elevated capital plan. Approximately $100 million of debt is expected by 2030; however, reserves have increased to $27.5 million in 2025 and are expected to continue growing, supported by multi-year rate increases.

RATING OUTLOOK

Outlooks are not assigned to local government credits with this amount of debt outstanding.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Increase in resident income above 120% of U.S. medians (issuer rating)

- Maintenance of strong fund balance and liquidity ratios (issuer rating)

- Increase in service area wealth above 120% (electric revenue rating)

- Increase and maintenance of days cash on hand above 150 days (electric revenue rating)

- Increase in service area wealth above 100% of U.S. medians (water sewer revenue rating)- Decline in debt to operating revenues below 1 times (water sewer revenue rating)

- Increase in system size above $30 million (water sewer revenue rating)

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Decline in fund balance levels below 35% (issuer rating)

- Increase in long-term liabilities above 150% of revenue (issuer rating)

- Material decline in resident wealth and income levels (issuer rating)

- Decline in debt service coverage below 1.8 times (electric revenue rating)

- Decline in days cash on hand below 50 days (electric revenue rating)

- Decline in days cash on hand below 300 days (water sewer revenue rating)

- Debt service coverage decline below 2 times (water sewer revenue rating)

PROFILE

Gallatin is located approximately 25 miles northeast of Nashville and has a population of approximately 48,532.