BREDESEN HIGHLIGHTS RECORD-HIGH RAINY DAY FUND
GOVERNOR MEETS WITH BOND-RATINGS AGENCIES TO REVIEW BUDGET PRIORITIES
Nashville — Governor Phil Bredesen departed today for a two-day trip to New York to meet with bond-ratings agencies and deliver an important message: Tennessee’s Rainy Day Fund is at its highest level ever and soon will be fully funded by Wall Street standards for the first time in the state’s history.
“Building a healthy Rainy Day Fund helps us avoid budget problems in the future and sends a strong signal that Tennessee is serious about managing its finances in a responsible manner," Bredesen said. “I’m proud to have worked with the General Assembly to reach this important milestone.”
The State of Tennessee’s budget for the 2006-07 fiscal year that began July 1 calls for raising the Rainy Day Fund to a record-high $497 million — or about 5% of general-fund revenues. As a rule of thumb, bond-ratings agencies including Fitch, Moody’s and Standard & Poor’s suggest that states maintain rainy day funds equal to at least 5% of general-fund revenues.
The Rainy Day Fund is one of several key factors the bond-ratings agencies consider as they evaluate Tennessee’s credit. A strong rating often means lower interest rates, saving the state money when it repays funds borrowed for projects such as new facilities for state colleges and universities. Also important is the message that a strong rating sends to the rest of the country - particularly to companies looking to expand or relocate.
"Bond ratings say a lot about a state’s overall fiscal and economic health," said Bredesen, who upon taking office in January 2003 led efforts to stabilize Tennessee’s ratings after repeated downgrades and a series of fiscal crises that began in the late-1990s.
Most recently, Moody's assigned its "Aa2" bond rating to Tennessee's long-term debt and Fitch and S&P each assigned their "AA" ratings. The marks are down from Tennessee's superior triple-A status held as recently as 1999. "I’d very much like to regain that triple-A rating and I believe we’re on track to do it," Bredesen said. “When it comes to budgeting, that’s as close as you can get to the Good Housekeeping Seal of Approval.”
Tennessee’s record-high Rainy Day Fund is notable for another reason. When Bredesen took office, he faced the prospect of reducing the fund to “zero” as a result of significant budget pressures at that time. But he worked with federal officials to negotiate changes in TennCare, allowing the fund to remain intact. Since that time, he designated building the Rainy Day Fund as one of his top budget priorities.
“For me, investing in the Rainy Day Fund is an article of faith,” Bredesen said. “Over the next four years, I’m going to keep socking away savings so that we’re prepared in the event of any future economic downturn. It’s the right thing to do.”