Haslam downplays possible downgrade of Tennessee bond rating

Haslam downplays possible downgrade of Tennessee bond rating

July 21st, 2011 by Andy Sher in News

Gov. Haslam

NASHVILLE - 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.

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.

The state, for example, is sensitive to national economic trends compared with other AAA-rated states based on employment volatility.

And while Tennessee's state and federal politicians are fond of railing about federal spending, the state in fact has, according to Moody's, an "above average" share of federal employees as a percentage of its workforce.

Moreover, Moody says, Tennessee's TennCare program consumes a larger percentage of state resources than the average for states.

Tennessee Senate Speaker Pro Tem Bo Watson, R-Harrison, said he backs efforts to cut federal spending and recognizes "the federal government is going to have to contract, reduce spending."

At the same time, he said, "I would hope that our federal legislators would be thoughtful" about the impact on states.

"We've worked very hard in Tennessee to get our financial house in order," said Watson, a Senate Finance Committee member. "We're a very well-run and fiscally managed state. It would be really unfortunate that a decision made at the federal level would have an impact on our credit rating. We can't control that."

The possibility of default looms if congressional Republicans and Democrats don't agree to lifting the nation's debt ceiling.

Haslam agreed that the upshot of any federal budget agreement is that there will be less federal money for Tennessee.

"Regardless of how this plays out, the federal government is going to be sending less money to states. You can just bank on that."