A major Wall Street credit rating agency weighed in on Connecticut’s school funding crisis this week, saying an overhaul would improve the credit standing of the state’s poorest cities.
Connecticut’s longstanding fiscal problems continued to raise concerns on Wall Street Tuesday as a third major rating agency downgraded the state’s credit ranking. Kroll Bond Rating Agency announced its downgrade Tuesday, citing Connecticut’s high debt, low reserves, eroding income tax receipts and a lack of wage growth.
With Connecticut’s new fiscal year set to begin Friday, serious issues — involving both spending and revenue — have arisen in recent weeks that challenge state government’s new spending plan before it’s even begun. And a major Wall Street credit rating agency questioned Monday whether Connecticut’s fiscal house is in order.
The new state budget’s ability to mitigate longstanding fiscal problems got poor marks Thursday on Wall Street as two of the four major rating agencies downgraded Connecticut’s credit ranking — probably boosting borrowing costs in the future.
Connecticut’s 50 largest state income tax filers reported nearly $3 billion less in quarterly earnings this spring than they did one year ago — which resulted in a $217 million hit to the state’s coffers, the legislature’s nonpartisan fiscal staff reported Wednesday.
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.
State Comptroller Kevin P. Lembo certified a $220 million deficit Tuesday for the current fiscal year, a report that largely echoes last week’s warning from the legislature’s nonpartisan analysts about eroding state income tax receipts.
Gov. Dannel P. Malloy’s new budget proposal could be $50 million to $74 million out of balance if state Treasurer Denise L. Nappier and the legislature’s nonpartisan analysts are correct about what Connecticut owes on its credit card.
Connecticut is on pace to exceed its hard credit card limit by more than $320 million in two years — a projection that will tighten available borrowing for local schools, public colleges and universities, state building renovations and various projects in legislators’ districts.
A major Wall Street rating agency warned it might lower Connecticut’s bond rating — pushing up interest costs on capital projects — if the state adopts Gov. Dannel P. Malloy’s plan to restructure contributions to the employee pension fund.
Since Gov. Dannel P. Malloy’s administration announced state income tax receipts were lagging due to weak stock market earnings, much of the Capitol’s focus has been on the relatively small hole it opened in the current budget. But the projected loss of $100 million in tax receipts this year also exacerbates a much bigger budget problem just down the road.
Though the new state budget is just two months old, Connecticut’s chief fiscal watchdog already is warning about several problems that could push state finances into the red.
While praising Gov. Dannel P. Malloy and the legislature for adopting a two-year plan that is balanced and relies on few one-time revenues, the agencies also noted that Connecticut continues to struggle with “tepid” revenue growth and a small budget reserve that leaves the state vulnerable to “future fiscal shocks.”
Gov. Dannel P. Malloy drew criticism this year when he warned Wall Street investors he would boost state government’s effective credit card limit by 40 percent this year. But if the State Bond Commission approves all of the financing Malloy has proposed for next week’s meeting, the governor will have used up 95 percent of his self-imposed credit limit – with five months still to go in the calendar year.
State Treasurer Denise L. Nappier unveiled a compromise plan Monday to reform state bonding practices while also giving Gov. Dannel P. Malloy and the legislature some flexibility to use borrowed funds to balance the next two-year budget.