Tennessee Lands A Third Triple-A Rating

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BRADENTON, Fla. – Tennessee's general obligation bonds got a boost to AAA Thursday by S&P Global Ratings, which cited the state's sound operations and improving economy.

The S&P upgrade affects $1.96 billion of outstanding GOs. The rating agency also cited an improving economy, growing reserves, positive year-to-date performance, and continuous sound management.

The outlook is stable.

Tennessee's GOs have been rated triple-A by Fitch Ratings and Moody's Investors Service since 2010, when both agencies recalibrated their muni ratings.

State officials welcomed S&P's upgrade, and pointed out that the Legislature has worked to increase reserves and limit liability in post-employment health benefits by closing that plan to new hires last year.

The action by S&P gives the state three coveted gilt-edged ratings, said Gov. Bill Haslam, who added that only 10 other states enjoy the distinction.

"In terms of looking at the finances of the state, it's truly the gold standard to be able to say you have triple, triple-A ratings," he said during a press conference announcing the upgrade. "It obviously means that our taxpayers will be paying less in interest rate on the state's debt."

S&P said its AAA was based on a number of factors, including the Volunteer State's growing economy, although it is still concentrated in cyclical trade and manufacturing sectors.

The "rainy day" reserves, although still below pre-recession levels, are projected to improve in 2016 and 2017. The funds available for emergencies and other available reserves provide the state with "significant financial flexibility," analyst Carol Spain said.

The rainy day reserve balance is projected to be $568 million at the end of the current year, and will rise by another $100 million in the fiscal 2017 budget, according to state officials.

"We view the state's improved reserves as better positioning it than peers against another potential economic downturn despite reliance on cyclical sales tax revenues," Moody's said.

Tennessee does not have a state income tax.

S&P said the state's pension and OPEB other post-employment benefit liabilities also are low.

"State officials have funded 100% of the actuarial determined contribution for more than 30 years, and did so again in fiscal 2015, which we consider a strength," Spain said.

In April, Tennessee announced that year-to-date revenue collections were $757.1 million more than the budgeted estimate.

Sales taxes collections for the first nine months of fiscal 2016 were $311.5 million higher than forecast, reflecting a 7.96% growth rate.

S&P on Thursday also raised its long-term rating to AA-plus from AA on the Tennessee State School Bond Authority's 2009 and 2010 qualified school construction bonds.

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