Tennessee’s governor and other officials are due to travel to New York City in September for the annual review of state creditworthiness by bond rating agencies. It’s a visit usually called “routine,” but this year is anything but.
House Republican Leader Gerald McCormick says the annual financial review by Fitch, Standard and Poor’s and Moody’s bond rating agencies is under a cloud because of the recent downgrade of the federal government’s fiscal health by S&P.
“The state of Tennessee depends on the federal government for over 40 percent of our budget every year. So if the federal government becomes less likely to pay their bills, then naturally the bond rating agencies are going to worry about the states that depend on federal matching funds.”
State Finance Commissioner Mark Emkes and others went to New York last week in a pre-emptive strike, to pitch for the state’s continued credit-worthiness. The state’s “routine” review in September is the next step in trying to shore up Tennessee’s credit rating.
McCormick says that a downgrade of the state’s credit rating would be hard on the state but potentially disastrous to small cities and counties.
McCormick says he hopes that the state delegation to New York will include at least one state Senator and one member of the House.
He says a downgrade of the state’s credit rating wouldn’t cripple the state, which has little long-range debt, but it would make it more difficult to issue some bonds
But that pales in comparison to the potential effect on cities and counties.
“The cities and especially the counties, really are, technically, a part of state government, and … if the bond ratings agencies are concerned about the federal government, and the state government, paying their bills, certainly they’re going to be worried about the smaller governments that don’t have…the same big tax base.”
There’s a historical precedent for these concerns, McCormick says.
“You know, we haven’t had this situation since the 1920s and ’30s, and you had a lot of defaults in those eras, and it was a lot of smaller counties that did that. They had these old drainage bonds that they issued, to have drainage ditches. And the economy went south and they literally couldn’t pay their bills, and they defaulted on those bonds…. There were a lot of years that, particularly the southern communities had a hard time getting credit through Wall Street because of those bad times. And we certainly want to avoid a repeat of that. But the smaller communities with the small tax bases are probably in more danger than anyone of having credit restricted and … have an inability to do any infrastructure work.”
Previous stories on the state’s stake in the federal debt crisis: