NASHVILLE, Tenn. - New York based Moody's Investors announced Tuesday it will review the AAA bond rating status of Tennessee and four other states. This is a direct result of the federal government's difficulty in coming to an agreement over raising the debt ceiling.
"This is a classic case of what happens in Washington coming home to roost," said municipal bond expert and Metro Councilman Emily Evans.
Municipal bonds are a funding source for state lawmakers.
"They sell the bonds, and the proceeds are used for financing long term capital projects," Evans explained.
The higher the bond rating, the lower the interest rate the state has to pay to bond purchasers.
"Tennessee's had a AAA rating for quite a number of years," said Evans.
But that could change because of the Congressional conflict over raising the debt ceiling. Because of the instability, Moody's has warned it could lower the government's bond rating.
"We can't have a higher rating than the entire country. Although I think I could make a compelling argument in favor of it. So they're looking at downgrading us if they downgrade the United States government," Evans said.
If a bond rating downgrade were to happen, Tennessee would have to pay more to raise money through bond sales.
"It means the interest rates on our bonds will have to go up to attract more buyers of the bonds and to reward them for the additional risk of the lower credit rating," Evans explained.
That means fewer Tennessee tax dollars to spend on the people's needs.
"It'll cost us in higher operating costs of government. Every year we pay the debt service on our bonds, and if the interest rate goes up, everybody pays," Evans added.
The Tennessee Comptroller's Office handles the sale of bonds for the state. The spokesman for the Comptroller issued a statement Tuesday regarding the Moody's review.
"While we think Tennessee is deserving of a continued AAA rating, if a downgrade occurs as a result of a lowering of the federal rating, you can make no mistake, Tennessee will meet its obligations." said Blake Fontenay.
Maryland, New Mexico, South Carolina and Virginia are in the same situation as Tennessee.
The states will find out if their bond ratings are downgraded 7 to 10 after Moody's takes action to reduce the federal government's rating.