“The revision highlights the importance of financial responsibility in state government and it confirms that we’re on the right track,” Goetz said. “Governor Bredesen has been very deliberate in his stewardship of our state government and the budget process. The Governor has coupled budget cuts with targeted investments in education, rainy day funds and our pension system that have resulted in a much stronger financial position for the state. We plan to continue conserving our resources, focusing our efforts on the areas we believe are important to Tennessee – such as education, jobs and economic growth – while controlling the sky-rocketing costs of TennCare. This is a very positive indicator for where we are headed.”

A high bond rating is desirable because it allows the state to borrow money at lower interest rates. It also sends a message to industries considering relocation that the state is on solid financial ground.

S&P cited these specific details: employment growth and a reduction of unemployment to a two-year low; increase of Tennessee’s revenue stabilization fund to $217 million at June 30, 2004, as well as a budgeted increase to $275 million by fiscal year-end 2005; the structurally balanced fiscal 2005 budget, which does not rely on onetime revenues and conservatively budgets revenue growth; conservative management, reflected in a proposed reform of the TennCare program; and, low debt burden, coupled with very manageable future debt issuance.

S&P also noted that the state's debt burden is very low with an almost fully funded pension system and manageable future capital plans.

The rating applies to all the state’s general obligation bonds, but precedes the June 23 issue of $55.56 million in general obligation bonds, which are federally taxable but not taxable at the state level.