published Friday, July 22nd, 2011

Tennessee officials consider possible credit rating drop

NASHVILLE — Gov. Bill Haslam says state officials are discussing the impact of a lowered credit rating if the U.S. government’s credit rating is downgraded.

Earlier this month, Moody’s Investors Service placed the federal government’s triple-A credit rating under review for a possible downgrade as Congress and the White House wrestle over raising the nation’s $14.3 trillion borrowing limit. Moody’s said there is a small but rising risk the government will default on its debt if the limit is not raised by Aug. 2.

If there is a default, Moody’s has warned that it probably will lower the triple-A credit ratings of five states, including Tennessee.

A triple-A rating is the highest for debt and tells investors an institutional borrower presents a minimal credit risk.

Haslam, a Republican, told reporters Wednesday he’s not overly concerned because Tennessee is in “maybe one of the two or three best financial shapes of any state out there.”

“Regardless, the state of Tennessee will be in good shape,” Haslam said.

House Minority Leader Craig Fitzhugh told reporters at a news conference Thursday that a lowered rating for the state probably would mean slightly higher interest rates, which the governor also acknowledged.

But Fitzhugh said Tennesseans shouldn’t worry because he believes Congress will reach an agreement to avoid damaging the nation’s credit reputation.

“I know that cooler heads on both sides of Congress will prevail and we won’t let that happen,” the Ripley Democrat said.

Fitzhugh and other Democratic leaders called the news conference to announce legislation they’ve filed that would allocate any surplus state revenues to cutting the sales tax on food and providing for need-based college scholarships.

The sales tax on food in Tennessee is currently 5.5 percent, and state colleges are facing double-digit tuition hikes of as much as 15 percent at some institutions, which lawmakers say puts even more financial stress on students.

Fitzhugh said the state’s positive revenue collections justify the tax relief proposal, which will be taken up when the General Assembly convenes in January. Finance and Administration Commissioner Mark Emkes announced last week that June revenue was $31.8 million more than budgeted.

“We expect that to continue,” Fitzhugh said. “So ... we need to put something on the table that will benefit all Tennesseans and that we can look forward to when these revenues rise.”

Tennessee Republican Party Chairman Chris Devaney said in a statement later Thursday that such a proposal would hurt the state by draining its rainy day fund, which “protects taxpayers from tax increases and essential government programs from cuts during an economic downturn.”

“Tennessee Democrats are attempting to steer our state down a path that puts all of Tennessee in a dangerous position,” he said.

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