NASHVILLE, Tenn. (AP) — Moody’s Investors Service has revised Tennessee’s credit outlook from negative to stable.
Moody’s in October retained its top debt rating for Tennessee but gave the state the negative outlook following an earlier decision to do the same with the federal government’s debt.
The ratings agency said in a statement Wednesday that the outlooks of Tennessee and South Carolina were improved because they have a relatively low financial and economic exposure to reductions in federal spending.
Moody’s said it kept the outlooks for Maryland, New Mexico and Virginia at negative.
Tennessee also has a top rating from Fitch Ratings, while Standard and Poor’s has the state at one notch below its best grade.
(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
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.
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.