Three of Wall Street’s four major credit rating agencies have assigned a “negative outlook” to Connecticut’s bond rating — a warning that the state could face a downgrade, and higher borrowing costs in the next year or two.
Moody’s Investors Service and Kroll Bond Ratings assigned the negative outlook to Connecticut’s current rating as the state prepares to offer $550 million in general obligation bonds on the market later this month, state Treasurer Denise L. Nappier announced Thursday.
A negative outlook means that a credit rating will be under review for one to two years.
Standard & Poor’s, which previously had assigned a negative outlook to Connecticut, maintained that position this week. The fourth agency, Fitch Ratings, affirmed its “stable outlook” for the state.
These reports also come out just less than two weeks after nonpartisan analysts dramatically reduced projected state income tax receipts. Those projections, coupled with earlier forecasts, now means Connecticut faces growing deficits this fiscal year and for the next three.
Nonpartisan analysts say the current budget is $266 million in the red, a relatively modest gap equal to about 1.5 percent of annual operating expenses. The projected future shortfalls are:
- $900 million, or 5 percent, in 2016-17;
- And more than $2 billion, or 10 percent, in the 2017-18 and 2018-19 fiscal years.
And though none of the agencies lowered Connecticut’s actual rating, Nappier called the rating agencies’ overall analysis “bittersweet.”
“While there is the good news that the state’s ratings remain unchanged —which demonstrates continued confidence in our creditworthiness — the Moody’s and Kroll negative outlooks further emphasize the need to fortify the State’s fiscal footing,” she said.
The rating agencies still recognize the state’s “credit positives,” such as the having the highest per capita income in the nation and “strong governance that speaks to the soundness of Connecticut’s fiscal management,” Nappier added.
Gov. Dannel P. Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes, also noted that the agencies praised Connecticut’s “strong governance” and its ability to make mid-year adjustments to eliminate deficits.
But he also noted that they expressed concern about the state’s relatively modest emergency reserve — about $406 million, or only 2 .2 percent of annual operating expenses — and more than $70 billion in long-term obligations, most tied to bonded debt and retirement benefits.
“We are taking on the challenges of the new economic reality,” Barnes said. “Like Connecticut’s families, state government can no longer spend more than it has. We are working towards a permanent solution and hope it will happen in a bipartisan manner.”
But the top Republicans in the legislature said the negative outlooks show Wall Street is losing confidence in Connecticut’s fiscal policies.
“That is not ‘bittersweet,’ as the treasurer suggests, but simply bitter news,” House Minority Leader Themis Klarides, R-Derby, said. “Our state’s finances are shaky, and this does not bode well for the future. Connecticut’s ability to meet its obligations [is] being doubted by those who assess our fiscal health.”
“Connecticut is moving in the wrong direction thanks to years of failed Democrat policies and people are taking notice,” Senate Minority Leader Len Fasano, R-North Haven, said. “We have billion dollar deficits in the near future. And debt service is almost 13 percent of our state budget and growing.”
“These numbers are what we should all be fearful of – because if we continue down this unsustainable path our state will never be able to dig ourselves out of the hole,” Fasano added.