Sunday, July 28, 2002

Reader Contributions

Astute reader Tim posted a couple of good items in the comments down below. They are good enough to be pulled and highlighted here. Thanks, Tim!

In the post titled Read For Yourself, about the State revenue report, Tim also gives us this link:

And in the post titled The Stuff You Learn Just By Looking It Up, Tim finds the Standard & Poor's report on Tennessee being removed from credit watch. I'll repost the whole thing here:
Tennessee's GO Bond Rating Removed From
CreditWatch; 'AA' Rating Affirmed, Outlook Negative
Analyst: Kenneth A Gear, Washington D.C. (1)
202-383-3540; Alexander M Fraser, Dallas (1)

WASHINGTON, D.C. (Standard & Poor's) July 12,
2002-Standard & Poor's said it affirmed its
double-'A' rating on Tennessee's outstanding GO
bonds and removed the rating from CreditWatch,
where it was placed Jan. 25, 2002, reflecting the
increase in new revenues that effectively balance the
fiscal 2003 budget. The outlook has been changed to

Standard & Poor's also affirmed its single-'A-1'-plus
rating on Tennessee's outstanding general obligation
commercial paper series A and B and its
double-'A'-minus rating on Tennessee State Veteran
Homes Board's outstanding appropriation debt,
issued for Tennessee.

The negative outlook is based on reserves and
financial cushion that have been weakened and
uncertainty surrounding the ability of the 1% sales
tax increase to provide sufficient resources to
balance budgets in fiscal 2004 and beyond. Also of
concern is the ongoing political inertia that has
impaired the state's ability to address its financial
challenges in a timely manner.

"The legislature's July 4 adoption of a
revenue-raising bill and a balanced 2003 budget
provides some near-term comfort," said credit
analyst Kenneth Gear. "The budget includes $923.2
million of new tax revenues, a projected $600.3
million of which is from a 1% increase in the state
sales tax to 7%. The local portion of taxes adds
2.48%. The increase in revenue eliminates a
projected $800 million revenue gap," added Mr. Gear.

Recent financial operations were best characterized
by the state Legislature's inability to eliminate a
fiscal imbalance that has required the state to use
onetime revenues, along with spending cuts, to
balance its budgets in fiscals 1997-2002. A
weakened economy and weak revenue collections
created a $475 million shortfall at fiscal year-end
2002. The decline in sales tax collections is the
primary culprit in the shortfall, which could increase
depending on June revenue collections. The fiscal
2002 shortfall would be larger if not for the
availability and use of about $413.5 million, of which
$244 million was an accumulated balance and $170
million was tobacco settlement money paid in fiscal

The state's cupboard will be relatively bare to start
fiscal 2003, with just $135 million in reserve or
cushion remaining, including $85 million in the
revenue stabilization fund and $50 million in a federal
contingency fund. These reserves could decline if
June collections are weaker than anticipated, and
more has to be appropriated to close the gap. This
thin reserve position represents about 0.02% of
budgeted fiscal 2003 revenues.

Although the state's reserves are at very low levels in
2003, Standard & Poor's expectation is that an
economic recovery, coupled with continued efforts to
control expenditures, will prevent the state's finances
from deteriorating further. Future revenue-raising
actions are limited barring use of an unused revenue

Approximately $1.1 billion of debt is affected.

That third paragraph is telling. I hope that this Fall's elections clear it up for analysts.

My thanks again to Tim. Welcome to Half-Bakered!

Until next time,
Your Working Boy

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