S&P upgrades state’s credit rating from negative to stable
NASHVILLE — Bond rating agency Standard & Poor’s upgraded its outlook for Tennessee from negative to stable Tuesday, the first step in Gov. Phil Bredesen’s effort to rebuild confidence in the state’s financial future.
The change will “add credibility to Tennessee’s rating and create more interest in the bonds,” said Mary Margaret Collier, state director of bond finance.
While the average Tennessean may not notice the effect of the upgrade, they will benefit, she said.
“As we save money on interest expense, then there’s more money to go into discretionary projects or to use to improve other programs,” Collier said.
S&P credited the upgrade to a structurally balanced budget, a turnaround in state finances that led to a surplus last year, and Bredesen’s conservative approach to revamping TennCare, the state’s troubled health care program for poor, disabled and otherwise uninsured citizens.
“The revision highlights the importance of financial responsibility in state government, and it confirms we’re on the right track,” state Finance Commissioner Dave Goetz said in a statement.
The upgrade comes a year after Bredesen met in New York with S&P and the nation’s two other major bond rating agencies — Moody’s and Fitch Ratings — to let them know he was committed to getting the state budget under control.
Four years ago, Tennessee was one of a handful of states with Triple-A ratings — the highest — from all three services. But several years of budgetary gimmicks undid that and the state’s rating was downgraded two years in a row.
A $933 million tax increase in 2002 stopped the decline, but the state’s rating remains AA with all three services.
Neither Moody’s nor Fitch revised their outlooks for the state, with Moody’s keeping Tennessee on a “negative outlook.” Fitch does not use outlook designations.
The rating applies to all the state’s general obligation bonds. But it precedes Wednesday’s issue of $55 million in general obligation bonds, which are federally taxable but not taxable at the state level.
Tennessee generally sells between $100 million and $150 million a year in general obligation bonds for construction and maintenance projects, an amount kept relatively low because the state pays for its roads with cash.
While removing the negative outlook proved to be a relatively quick process, it will take much longer for Tennessee to regain its Triple-A status.
“If we ever get back to Triple-A, it will probably take another 10 years,” Collier said. “Triple-A is just the highest of the highest rating. There are only eight states out of 50 with it.
“It will just take time to get there.”