While the partisan debate over GE’s departure from Connecticut continues, a major Wall Street rating agency sees a correlation between the company’s move and the state’s ongoing fiscal and economic woes.
Moody’s Investors Service cited the impending move as it issued a “credit negative” — not a formal rating downgrade — but rather a public statement about a development that could harm Connecticut’s financial standing in the long run.
“The news is a credit negative for the state of Connecticut and it underscores the challenges the state faces as its revenues and economy continue to underperform,” Moody’s wrote Thursday in its weekly credit outlook.
GE announced on Jan. 13 that it would move its Fairfield headquarters to Boston over the next two years. Moody’s called the departure “a slight credit negative” for Fairfield, but added “the town should be able to absorb the loss with its diverse tax base and favorable long-term prospects.”
The legislature’s Democratic majority has insisted GE’s move was driven by Boston’s cosmopolitan setting and the technologically advanced workforce produced by its cluster of superb colleges and universities.
Republicans counter that Connecticut’s recent major tax hikes — and its huge debt that threatens to raise taxes even further over the next decade — pushed GE out the door.
Gov. Dannel P. Malloy, also a Democrat, has been more nuanced in his assessment, stressing the advantages of Boston while acknowledging some of Connecticut’s fiscal challenges.
But Moody’s noted that Connecticut still grapples with under-performing tax revenues, budget deficits, low reserves, population loss and an economy that still hasn’t recovered all jobs lost in the last recession.
“Furthermore the state continues to face budgetary pressure from high fixed costs for debt, pension and retiree health care,” Moody’s wrote.
State government still has a strong credit rating with Moody’s “which is a recognition that the underpinnings of Connecticut’s economy and budget are solid,” Gian-Carl Casa, spokesman for Malloy’s budget office, said Friday.
“Connecticut had one of the largest drops in unemployment in the nation last year alone and we continue to attract dozens of new companies through economic development tool kits that our state has never had before,” Casa added. “With that said, the business world is adapting and Connecticut no doubt needs to adapt with it. Even as we have worked with nearly 2,000 companies to create and retain tens o thousands of new jobs, we can, must and will do more to continue ensuring our economy remains vibrant.”
GOP leaders said Friday the message from the Wall Street agency was clear.
“Moody’s reaction to rate the GE move as ‘credit negative’ for the State of Connecticut is further proof that our state’s tax policies and persistent budget deficits were the prime reasons behind this corporate exodus,” House Minority Leader Themis Klarides, R-Derby, said. “The market has spoken.”
Klarides noted that if GE’s departure does lead to a credit rating downgrade for Connecticut, that only would increase the state’s debt because it would mean higher interest costs for financed capital projects.
“The Democrats continue to try and spin this as a transportation issue or on GE’s corporate makeover, but the people who rate our credit don’t buy it,” she added.
“This crushing assessment is evidence that GE’s move out of Connecticut speaks to the severity of Connecticut’s financial mess,” Senate Minority Leader Len Fasano, R-North Haven said. “It reflects poorly on Connecticut’s economy, tax policies, and business environment. If we want to turn that negativity around, Democrat lawmakers need to stop misleading the public. They need to stop distracting people from the truth that their failed financial policies, high taxes, and unsustainable approach to state budgeting are why GE left.”
Fasano said earlier this week that the Democratic majority must support “long-term structural changes to the state budget” when the regular 2016 session begins on Feb. 3. GOP leaders in particular have proposed a series of new restrictions on overtime and other labor costs.
According to nonpartisan analysts, a deficit of about $500 million is projected for the preliminary budget adopted for the next fiscal year. That’s about $100 million more than Connecticut has in its relatively modest emergency reserve.
And a much larger shortfall, topping $1.7 billion, is forecast for the first new budget legislators and the governor must begin to craft one year from now.
“The credit outlook states that Connecticut’s high fixed costs for debt and pension are major contributors to our state budget problems,” Fasano added Friday. “Republicans had plans to address both these issues in the December special legislative session. But our proposals to make long-term structural changes were rejected by Democrat lawmakers who only wanted to fix the budget in the short term.”
Gabe Rosenberg, a spokesman for the House Democratic Caucus, said “Democrats in the House look forward to working with Republicans next session to move Connecticut’s economy forward, but they need to be willing to make the tough decisions and stick by them. Republicans must also let go of the principal ‘reform’ they proposed in December, a retirement incentive plan, as it would blow a hole in Connecticut’s pension system and make the issues identified by Moody’s far worse.”
The Senate Democratic Caucus did not comment on Moody’s statement.