In its latest report on the State of Tennessee, Moody’s said the revised outlook “reflects improvements in the state economy” as well as recent “actions taken by the State to stabilize its financial condition and create structural budget balance.” Moody’s noted the State is seeking to hold down future costs in TennCare, its healthcare program for the poor, disabled and uninsured.

“We’re glad the credit-ratings agencies are recognizing that we’re working hard to restore fiscal stability in Tennessee,” Bredesen said. “As the economy improves, I believe we’re in a strong position to continue producing balanced budgets to fund K-12 education and all our other vital priorities.”

The Governor noted that Tennessee’s Rainy Day Fund, in particular, is on track to climb to $275 million during this fiscal year — its highest level ever. “That signals to the ratings agencies that Tennessee is serious about managing our finances in a fiscally responsible manner,” he said.

There are risks, the Governor warned. Proposed reforms to TennCare — which now accounts for roughly one-third of the State’s total budget — remain subject to federal approval and may face court challenges that could delay implementation. In its report, Moody’s noted the success of those reforms will be critical to the State’s efforts to “maintain structural budget balance.”

Moody’s revised outlook is the second positive action taken toward Tennessee by a major credit-ratings agency within the past 45 days. In late June, Standard & Poor’s Ratings Service revised its outlook for Tennessee to stable from negative, also citing a “turnaround of financial operations.”

Currently, Moody’s has assigned its “Aa2” rating to Tennessee’s long-term debt and S&P has assigned its “AA” rating. A third agency, Fitch Ratings, also has assigned its “AA” rating. The credit ratings, while down from Tennessee’s triple-A status held as recently as 1999, still are relatively strong. “Eventually, we’d like to regain that triple-A status,” Bredesen said.

Maintaining a strong bond 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 bond rating sends to the rest of the country — particularly to companies looking to expand or relocate.

“The bond rating says a lot about a state and its overall fiscal and economic health,” said John Morgan, comptroller of the Treasury and one of five members of the State Funding Board, which authorizes the State’s general-obligation debt and establishes tax-revenue estimates for the budget. The Governor serves as the ex-officio chairman of the Board.

“The Governor, the General Assembly and state government as a whole all have worked hard to restore faith in the State’s credit quality,” Morgan said. “We’re back on track in a positive way.”