NASHVILLE - 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 say.
The credit rating agency lowered the U.S.'s triple-A credit rating to "AA+," citing disappointment with the debt-ceiling deal Congress approved last week.
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 and the others with "negative" outlooks because of the volatile situation in Washington.
In an e-mail Saturday, state Treasurer David Lillard said he doesn't think S&P's action should hurt Tennessee's rating.
"First, Tennessee is rated AA+ by S&P with a positive outlook," he said. "Tennessee has excellent fiscal discipline and has a low amount of debt. The United States government has neither of these characteristics."
But Moody's analyst Nick Samuels said last week, before Congress passed debt-ceiling legislation, that the agency's perspective is whether a state could have a higher credit rating than the U.S.
"We're suggesting that globally there are very few circumstance around the world where subsovereigns [governments below the national level] have higher ratings than their parent, largely because the parent creates the economic and financial environment in which that entity exists," he said.
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