If not exactly bullish on Connecticut, Standard & Poor’s at least is predicting that the state’s governor and legislature will resolve its structural budget problems this year. The rating agency today affirmed the state’s AA bonding rating.
Here is S&P’s bad news, good news view of the state:
“The stable outlook reflects our expectation that Connecticut likely will continue to make the budget adjustments to restore fiscal balance despite what we consider its ongoing budgetary challenges. As in previous recessions, the volatility of the state’s revenue base and the magnitude of revenue declines have led to the state’s use of deficit bonds. In addition, Connecticut has fully depleted its budget stabilization fund through fiscal 2011. We believe that the higher leverage from the issuance of economic recovery notes could create cost pressures, and that the depletion of the reserves has diminished the state’s financial flexibility.
“Despite these generally negative credit trends, Connecticut has historically managed these budget pressures, and what we view as high leverage and revenue volatility have been factors at the current rating level. In addition, most of the solutions the state has proposed to address the budget gaps for fiscals 2012 and 2013 should, we believe, improve structural budget balance.”
Gov. Dannel P. Malloy has promised no gimmicks, such as the deferral of pension contributions made two years ago, plus the use of one-shot revenue like federal stimulus money and the rainy day fund.