Gov. Bill Haslam said Wednesday his meetings this week in New York with the three major bond rating agencies were “very positive,” but it will likely be about a month before Tennessee learns what its ratings are.
Haslam headed a contingent that included Commissioner of Finance and Administration Mark Emkes, Comptroller Justin Wilson, Secretary of State Tre Hargett, Treasurer David Lillard, the governor’s legal counsel Herbert Slatery and Lt. Gov. Ron Ramsey.
The group met with officials at Moody’s on Wednesday after meeting with Fitch and Standard & Poor‘s on Tuesday. Haslam and Emkes fielded questions about their trip in a conference call with reporters.
Tennessee currently operates with the highest ratings of AAA from Fitch and Moody’s and one notch below at AA-plus from Standard & Poor’s. Issues surrounding bond ratings have become particularly relevant with the nation’s economic downturn. Concerns have risen that states could become more vulnerable on bond ratings given the potential of federal budget cuts. Tennessee has recently undergone an exercise of designing possible cuts in state departments should it lose substantial federal funds.
But Haslam was upbeat about the state’s financial position in his remarks on Wednesday.
Haslam said the fact Tennessee operates with a balanced budget, has a good track record of financial responsibility and the agencies’ receptiveness to the state’s current leadership are working in the state’s favor.
“We have to balance the budget every year, and any new capital project requires 11 percent of that project to be funded in the first year,” Haslam said. “Well, if you think of ways governments are going to get out of bounds, if you will, a lot of times it’s for going too far in debt, and if you have to pay 11 percent of any new project the first year like we do in Tennessee, those are strong white lines on the side of the road.”
Haslam also noted that the state’s recent record on TennCare helps.
“I think there was a great level of reassurance from each one of the agencies when Commissioner Emkes walked through where we are on TennCare, the growth rate and the steps we’ve taken,” Haslam said.
TennCare is the state’s version of the federal Medicaid program, a point of great financial concern as states grapple with health care costs and the potential impact of Medicaid rolls growing under the new federal health care law.
Haslam said Wednesday that if there is one major concern from the agencies about Tennessee it is the “external factor” of what debt reduction in Washington could mean to the states. Emkes recently had state departments draw up contingency plans for budget cuts if federal reductions are as much as 30 percent. Those outlines resulted in preparation to cut up to $4.5 billion and lay off 5,100 people in state government.
“We walked through why we don’t think Tennessee is any more susceptible to federal cutbacks than any other state,” Haslam said. “Commissioner Emkes walked through the preparations each department had made if there are federal level cutbacks.
“I think while one of the agencies was expecting us to have done that work, I don’t think the other two were. So I think there was a real appreciation of the fact that we had been thoughtful about that process of what we would do in that situation.”
Emkes said the agencies are used to seeing such contingency plans from corporations.
“So I think they were favorably impressed that state government had looked at this and thought through the process,” Emkes said.
Questions have risen recently as to whether states could have bond ratings higher than the federal government, but Emkes said that subject did not come up in the meetings this week. Standard & Poor’s recently rocked the nation’s financial circles with an unprecedented downgrading of the federal government’s rating.
Haslam has said he believes potential federal cuts would be targeted at specific programs rather than across-the-board percentage reductions, and Emkes said Wednesday there seemed to be a mutual feeling between the state and the agencies that such cuts would be strategic.
Haslam said Ramsey explained to the rating agencies how the Legislature dealt with the loss of federal funds in the most recent budget process and how lawmakers would take a similar approach if it had to do so again.
“In some ways, remember, this is a little uncharted waters, even for the rating agencies,” Haslam said. “They’ve never been in a position where they’ve had to think through in the case of federal cutbacks and what that looks like for the states.
“Obviously, we’ve had federal cutbacks before but not to the degree that some people are contemplating.”
In a Facebook statement posted Wednesday, Lt. Gov. Ramsey expressed optimism that going forward Tennessee is in as good a fiscal position as could reasonably be expected given the nation’s troubling economic picture.
“Few states could even dream of making the impressive case we did these past two days,” Ramsey said of the meetings with the ratings agencies. “While the nation trends downward, Tennessee is looking up toward the horizon.”