NASHVILLE – Gov. Bill Haslam, Lt. Gov. Ron Ramsey and other state officials have assured New York-based credit agencies that Tennessee is better prepared that most states to deal with federal spending cutbacks and deserves to retain its AAA bond rating.
Representatives of Moody’s, Standard & Poor and Fitch’s credit rating agencies all seemed to have a positive response to the Tennessee pitch, though they their formal response is probably about a month away, Haslam said Wednesday in a telephone news conference.
Finance Commissioner Mark Emkes has all state government departments draft plans last month on how they would deal with up to a 30 percent reduction in federal funds they now receive. That, the state’s long-standing reputation for fiscal prudence and other factors seemed to impress the rating officials, Haslam said.
Moody’s recently put the Tennessee and four other states on a “negative outlook” for possible future downgrade in credit rating, citing what it characterized as a heavy overall dependence on federal spending in the states’ economy.
But Haslam said that, if TVA’s impact is excluded, Tennessee’s economy has about 16 percent of its economic base in federal spending – slightly less than the average of other states. With TVA included, the level rises to about 17 percent, roughly equal to the average, the governor said.
TVA should be excluded, he said, because its budget is not tied to federal spending in Washington and thus not impacted by federal cuts in other areas.
Note: Link to Ramsey’s full statement is HERE.
Excerpt from an op-ed piece by Finance Commissioner Mark Emkes on why Tennessee should get to keep its AAA credit rating:
Forty percent of Tennessee’s spending is money sent to us from Washington, but we have shown our ability and the political will to manage our budget according to the available revenues. Contrary to the disagreement that recently gripped Washington, our General Assembly unanimously approved the current budget despite difficult spending cuts.
We wanted to make sure the rating agencies heard our story before any decisions were made on our credit rating — and we have a strong story to tell. Tennessee remains among the lowest debt states in the nation. We have strong cash flow and a well-funded pension plan. While we tapped into the “rainy day” fund when it was raining the hardest, we’re now working diligently to rebuild those reserves.
One of the agencies in New York last week applauded the state’s management of TennCare’s budget, a clear change from when the program threatened to bankrupt the state a few years ago.
The decision by Standard & Poor’s to downgrade the U.S. government’s credit rating could affect future borrowing for states like Tennessee, which depend heavily on federal spending, experts tell Andy Sher.
One such expert is Eileen Norcross, a senior research fellow at George Mason University’s Mercatus Center in Virginia. “State and local governments that are otherwise doing well, but are carrying the risk of a lot of federal projects on their balance sheets, may find it more expensive to borrow,” she said.
The credit rating agency lowered the U.S. triple-A credit rating to “AA+,” citing disappointment with the debt-ceiling deal Congress approved last week. The agreement calls for about $2 trillion in deficit reduction over the next decade. S&P analysts had called for $4 trillion in deficit reduction and expressed concern over divisive politics in Washington, D.C.
Even before Friday’s action, Tennessee officials were preparing to travel to New York to defend the state’s triple-A credit rating with analysts from Moody’s Investors Service, another major rating company.
Moody’s on Thursday reaffirmed triple-A ratings for Tennessee and four other states it had put on a credit watch for potential downgrades if a federal default occurred. But the ratings agency also slapped Tennessee, South Carolina, Virginia, Maryland and New Mexico with “negative” outlooks because of the volatile situation in Washington.
While calling Tennessee’s credit rating “very important,” Gov. Bill Haslam on Wednesday sought to downplay the “likely” downgrading of the state’s AAA credit rating if Congress allows a default on the nation’s obligations, according to the Chattanooga TFP.
On Tuesday, Moody’s Investors Service said it would probably would lower top credit ratings for Tennessee and four other states if the U.S. doesn’t raise the federal government’s $14.3 trillion debt ceiling.
“Regardless, the state of Tennessee will be in good shape,” Haslam said, speaking to reporters. “I mean, I think we’re in maybe one of two or three of the best financial shapes of any state out there.
But that impact on our debt would cause some increased interest costs or could, in some instances,” he said. “So we’re concerned about it, but not overly, because of the financial condition we’re in.”
The credit agencies’ rating of debt affects state and local governments’ borrowing costs when issuing bonds. In its news release, Moody’s said the Volunteer State has several things going against it.
Note: Post on the Moody’s move HERE.
From the Associated Press:
Moody’s Investors Service warned Tuesday that it probably will lower the credit rating on five states if it downgrades the U.S. government’s credit rating.
The credit rating agency said it has placed on review for possible downgrade the triple-A bond ratings of Maryland, New Mexico, South Carolina, Tennessee and Virginia.
A triple-A rating is the highest for debt and tells investors an institutional borrower presents a minimal credit risk.
Last week, Moody’s placed the U.S. government’s triple-A credit rating under review for a possible downgrade as Congress and the White House wrestle over raising the nation’s $14.3 trillion borrowing limit. Moody’s said there is a small but rising risk the government will default on its debt.
The government reached its borrowing limit in May. Treasury says the government will default on its debt if the limit is not raised by Aug. 2.
Any action on the states’ ratings would come within 10 days of a U.S. rating downgrade, the firm said.
A downgrade would raise interest rates on U.S. treasury bonds, increasing the interest that taxpayers pay those who buy the bonds. It would also push up rates for mortgages, car loans and other debts, which are linked to Treasury rates.
It would have a ripple effect on states, particularly those that depend most on federal revenues and those with more federal government workers, contracts and Medicaid expenditures, among other factors.
Eighteen Tennessee colleges, student groups and alumni associations earned $1.8 million last year from agreements allowing credit card companies to market college-themed cards to students and alumni, according to The Tennessean.
Most of that money went to the University of Tennessee, which received $1.4 million through a marketing agreement with Chase, according to Federal Reserve data. The university’s contract, in place since 1998, is the fifth-most-lucrative in the nation.
The money funds scholarships and alumni projects, according to UT spokeswoman Gina Stafford. However, the program is on the decline.
The number of open UT affinity card accounts fell by 21 percent in 2010, and no new accounts were opened in 2010, according to Federal Reserve data. Chase has told UT it won’t renew the contract when it expires in 2012, Stafford said.
Nationally, the number of credit cards issued through colleges and alumni associations fell by 17 percent last year, according to a survey released last week by the Federal Reserve.