BRADENTON, Fla. - Tennessee's diversified economy, sound financial position, and cost-cutting in the state Medicaid program should help it weather the current economic downturn, according to a Standard & Poor's review of the credit released Thursday.
The agency rates Tennessee's $1.1 billion of outstanding general obligation debt AA-plus with a stable outlook.
Recent revenue reports show that critical sales tax collections have plummeted well below projections, prompting the governor to call for budget cuts and a plan to cut the state work force.
Despite the gloomy revenue picture, Standard & Poor's analyst Theodore Chapman said factors supporting the agency's double-A rating include steady job growth despite losses in the manufacturing sector, the state's strong commitment to budget stability, a retirement fund with a more than 98% funding ratio, and a low debt burden.
Just last week in a special address to a joint session of the General Assembly, Gov. Phil Bredesen announced sales tax revenue collections for April were the worst for that month since 1961 and he said the fourth quarter of the current fiscal year is "shaping up to be the worst on record."
The state doesn't collect property taxes and is one of the few that depend primarily on sales taxes to support its budget. It has no personal earned income tax.
Based on revenue projections for fiscal 2009 starting July 1, Bredesen said Tennessee must make additional budget cuts of between $468 million and $585 million. He proposed using $50 million in reserves to offer buyout packages to some of the 2,000 state employees projected to lose jobs under his budget-cutting scenario.
Bredesen also recommended not tapping the $750 million rainy-day fund, but foregoing the addition of $35 million proposed in his original budget. And he recommended not expanding the state's Medicaid program, called TennCare, or expanding the pre-K program, as well as seeking $229 million in budget cuts from state agencies.
"We believe Tennessee's cost cutting at TennCare and the state's overall economic stability and structurally sound financial position should help Tennessee maintain a sound financial condition through and beyond the current economic slowdown," Chapman said.
Lawmakers, who held off finalizing work on a proposed $27.9 billion budget to receive the latest revenue data, are expected to be in session through Friday.
The state's GOs are rated Aa1 and AA-plus by Moody's Investors Service and Fitch Ratings, respectively.