(Note: Expands and replaces earlier post)
NASHVILLE, Tenn. (AP) — Rating agencies have decided not to downgrade Tennessee’s debt after the state submitted a detailed game plan for how each agency would respond to deep federal spending cuts.
Republican Gov. Bill Haslam on Tuesday cited a “proven history of fiscal responsibility” in announcing that Moody’s Investors Service and Fitch Ratings have reissued their top ratings to Tennessee and that the state will remain one notch below Standard and Poor’s best grade.
The only change is Moody’s switching Tennessee to a negative outlook, following a decision in August to do the same with the federal government’s debt.
Haslam last month led a delegation of state official to meetings with all three ratings agencies in New York in which he presented plans for coping with federal spending cuts as deep as 30 percent.
The governor told reporters after a speech to a Republican group at a Nashville law firm on Tuesday that Tennessee showed the ratings agencies a willingness to make difficult spending decisions if they are required.
“Their concern is not about delivery of services,” he said. “What it’s about (is): Will people who loan money to the state get paid back? And to do that, they want to be hear if you’re willing to make cuts if you have to.”
“That’s reassuring to them,” he said.
The ratings decisions were reported earlier by The Tennessean and The Memphis Daily News based on an email to lawmakers from an aide to the state comptroller and a Twitter post by state Senate Speaker Ron Ramsey, R-Blountville, on Monday afternoon.
“These ratings are proof that a united Republican government determined to cut government and promote economic growth works,” Ramsey said in a statement Tuesday. “It’s that simple.”
Finance Commissioner Mark Emkes earlier led a delegation of state officials to meetings with Moody’s and Fitch after initial rumblings in August that Tennessee could face a downgrade because of it relies on the federal government for about 40 percent of its budget.
Upon his return, the former CEO of tire maker Bridgestone Americas ordered each state agency to lay out plans for how it would cut 15 percent of federal aid, and another for reducing those funds by an additional 15 percent.
The state in September submitted its 153-page plan detailing how the each agency would deal with an across-the-board reduction in federal money.
“They were used to seeing contingency planning and risk assessment from corporations, so I think they were favorably impressed that the state government had looked at this and gone through the process,” Emkes said after a second round of meetings with the ratings agencies.
Under the worst-case scenario, Tennessee would have to cut $4.5 billion out of the $30.8 billion spending plan and lay off more than 5,100 state employees.
About half of those cuts would be made at TennCare, the state’s expanded Medicaid program serving 1.2 million people.
Former Democratic Gov. Phil Bredesen cut 170,000 adults from TennCare and reduced benefits to thousands more to bring spending under control during his two terms as governor that ended in January. TennCare costs dropped by about $1 billion between 2005 and 2009, but still make up about a quarter of the state budget.
Tennessee’s approach doesn’t appear to have been replicated by other states making their cases to keep or improve their debt ratings.
Note: News release below
News release from the governor’s office:
NASHVILLE – Tennessee Gov. Bill Haslam today lauded the three bond rating agencies for maintaining the state’s solid credit ratings, a testament to Tennessee’s leadership and conservative fiscal management.
The state will keep its Aaa rating from Moody’s Investor Service and Fitch Inc. and its AA+ rating with a positive outlook from Standard & Poor’s. Moody’s, however, did place the state’s rating on “negative outlook,” which relates to the agency’s decision in August to confirm the Aaa bond rating of the United States while assigning a negative outlook.
These ratings allow the state to pay lower interest rates when it borrows money. Tennessee has one of the lowest debt burdens of any state in the country, a fact that is a strong positive in the evaluation process.
“We have a proven history of fiscal responsibility in Tennessee, and I appreciate the confidence the agencies are showing in our current leadership team by maintaining the state’s strong ratings during these turbulent economic times nationally,” Haslam said. “We are committed to fiscal restraint in managing our budget and will continue to prepare for the likelihood of less federal funding out of Washington.”
Finance and Administration Commissioner Mark Emkes along with the state constitutional officers including Comptroller Justin Wilson, Treasurer David Lillard, Secretary of State Tre Hargett and other state officials traveled to New York in August for preliminary presentations to two of the ratings agencies. Following those meetings, Emkes asked state agencies to draft contingency plans to prepare for reductions in federal funding.
Haslam and Emkes joined Lt. Gov. Ron Ramsey (R-Blountville) and the constitutional officers earlier this month in New York for the state’s annual meetings with the three agencies. There they made the case that Tennessee is a well-managed state with low debt and is well-positioned to weather the current financial climate.
The Tennessee Constitution requires the state to balance its budget every year, and any capital project must be funded at 11 percent of its cost in the first year. The governor emphasized these structural decisions in state government are important indicators of stability and prudent management.