Christine Stuart file photo

The longest budget battle in the state’s history was revived Tuesday with news that Moody’s Investors Service was downgrading the state’s outlook from “stable” to “negative.”

The rating company said Connecticut will maintain its Aa3 bond rating for now, but it’s concerned about some of the decisions the state made on its budget.

In this report Moody’s explained that the “negative outlook” is attributed to the state’s decision to borrow close to $950 million to close the 2009 budget deficit and its decision to borrow against $1.3 billion in a “yet-to-be-determined revenue stream.”

In general the report also seemed to disapprove of the state’s decision to rely on one-time “solutions to close slightly over half of the shortfall.”

“These solutions create future structural budget gaps and leave the state with significantly reduced flexibility to address additional fiscal pressures that may arise due to a delayed and/or weaker than expected recovery from the worst economic recession since the depression,” the report says.

In a letter to lawmakers Republican Gov. M. Jodi Rell said the negative outlook “is an alarm signal that we clearly cannot afford to ignore.”

“Being forced to pay higher interest rates on our bonds would have serious and lasting financial effects in both the near- and long-term,” Rell said just a few days before the next state Bond Commission hearing.

Sen. President Donald Williams, D-Brooklyn, said in a statement that while he shares the rating company’s concern about the structural holes in the budget, “Now is not the time for the governor to try to disown parts of the budget that she initially proposed – such as securitization, borrowing, and one-time fixes.”

Rell did not sign the $37.6 billion two-year state budget passed by the Democrat-controlled General Assembly.  She simply let it go into effect without her signature. A move which a poll later revealed was not popular with the public.

“In essence: Moody’s feels – as I do – that the budget relies far too much on debt and one-shot revenues to prop up continued unaffordable levels of spending,” Rell said in her letter to lawmakers.

But Williams doesn’t believe the governor is able to escape all responsibility for the state budget, just because she decided not to sign it.

“By its own admission the administration has increased spending by more than $200 million,” Williams said in a statement referring to recent numbers released by Rell’s budget office.

But Republican lawmakers who didn’t vote in favor of the budget warn that not even the biggest tax hike in the state’s history was able to kept the budget in balance.

“We can do little about revenue…But we can do something about spending and that’s where the focus must be right now,’’ House Minority Leader Lawrence Cafero, R-Norwalk, said, in a statement. He added that the rating by Moody’s disregards politics.

State Treasurer Denise Nappier tried to put the negative outlook into some perspective.

“In the final analysis, both the Governor and the Legislature struggled to strike a balance between what we need and what we can do without,” Nappier said in a statement. “Moody’s perspective reinforces what the State already knows it must do, and that is head back to the drawing board and strengthen the State’s fiscal footing going forward.”

The negative outlook means the state’s credit rating is under review by Moody’s for a possible change over the next 18 to 24 months. It is not as significant as placing the state on a “watch list” which means a credit rating change is pending.

Connecticut joins Arizona, Florida, Kentucky, Michigan, New Jersey, Ohio, Pennsylvania, Rhode Island and Wisconsin in receiving a negative outlook from Moody’s.