The Associated Press reports that Moody’s Investor Service may downgrade Tennessee’s credit rating.
If that happens, it would cost state taxpayers plenty.
Avoiding a downgrade is another reason why Tennesseans should insist that Congress and the White House compromise on the debt ceiling issue.
Here’s why Moody’s has put Tennessee on notice:
“While all states are indirectly linked to the U.S. government to some degree, we have identified the five Aaa-rated states that are most vulnerable to changes in the U.S. government rating,” said Nicholas Samuels, a Vice President in Moody’s State Ratings Team. These five states have above average exposure to several sovereign risk factors that Moody’s outlined in a July 13 special comment, “Implications of a U.S. Rating Action for Aaa-Rated U.S. Municipal Credits.” The risk factors are macroeconomic sensitivity, capital markets reliance, and dependence on federal revenues, offset by financial resources available to counteract those risks.”
Moody’s says the risk factors specific to Tennessee are:
• Sensitivity to national economic trends compared to other Aaa-rated states based on Moody’s Economy.com measure of employment volatility due to U.S. fluctuations: Above average
• Federal employees as a percentage of the state’s total employment: Above average
• Capital markets risk: Relatively high due to above average amount of puttable variable rate debt outstanding
• Federal procurement contracts as a percentage of state gross domestic product: Average
• Medicaid as a percentage of total expenditures: Above average
• Available fund balance as a percentage of operating revenue: Below average