After meeting with representatives of three major bond rating agencies in New York, Tennessee Gov. Phil Bredesen said Thursday he isn't planning any new tax measures next year to grow state government's revenue base.
"I'm certainly not aware at this point of any new tax initiatives that I would introduce. I've tried to be very careful and conservative about that stuff and certainly do not have any plans at this particular point," Bredesen, a Democrat, said during a conference call with reporters.
With Bredesen's approval, the General Assembly this year approved a 42 cent increase on each pack of cigarettes sold in Tennessee to help fund education initiatives and earmarked $253 million for the state's Rainy Day Fund, bringing total reserves to about $750 million.
Bredesen indicated executives at the Fitch, Standard and Poor's and Moody's Investors Service bond rating agencies liked those kinds of financial moves, in addition to his administration working to close a number of tax loopholes and increase revenue collections.
"We emphasized, and I think they very much responded positively to ... the fact that even in a strong revenue growth year when there is a million things that people would like to do with the money, in fact the money was used in very reasonable, responsible ways ... to grow the Rainy Day Fund, and we did a lot of higher education construction out of cash. ... I think they were impressed with the discipline that all parts of the state showed during that process," Bredesen said. "Every time you have a tax, our sales tax or our franchise and excise taxes, there's a whole industry out there trying to figure out how to get around them. ... When you have a fairly narrow tax base as we do when you're so dependent on a couple of taxes, protecting that tax base is very important to these rating agencies, and the legislature's willingness to do that was important to them."
Last year, Moody's upgraded its credit outlook for the state to positive from stable, while the other two main rating agencies, Fitch and Standard & Poor's, each increased the state's bond rating by one notch to AA+.
Bredesen said he doesn't expect Tennessee to immediately be moved into the top AAA bond rating echelon.
"I'm dreaming that we can get it before I leave office, but that would probably be unusual," he noted. "What Tennessee has to show to get back to AAA is the ability ... to manage through a couple of tough years. ... They want to see what we do when times are good, and they want to see what we do when times are bad."
The most recent economic forecast from the University of Tennessee's Center for Business and Economic Research called for the state's economy to "enjoy continued expansion" into 2009.
As a result of good economic times, Bredesen said the meetings with the bond rating agencies have become an easier sell. When he took office in 2003, Bredesen had to implement across-the-board spending cuts. But he benefited from a near-billion dollar sales tax increase approved by lawmakers in 2002 after a stalemate over a proposed state income tax during Gov. Don Sundquist's administration.
"I had to do a little tap dancing the first couple years (during the bond rating agency meetings) since we had significant problems. We had a good story to tell, but we hadn't done it yet," Bredesen said. "This is a good year. ... Obviously, there's a good story to tell. I think all three of them were impressed by the revenue growth in the state. That is obviously a sign of a healthy economy and conservative budgeting and the like."
A higher bond rating means the state can get lower interest rates on bonds issued for large projects.
"There's a lot of people who could live their lives quite satisfactorily without knowing what our bond rating is," Bredesen acknowledged. "But one percentage point on (borrowing) $1 billion is $10 million, and that's a lot of money. ... When you look at the bond rating you don't have to listen to what your politicians say about how well they are doing. You have some independent third-party verification that the approach they are following ... is fiscally sound."