The decision to borrow $947.6 million this year and $956 million next year to close the state budget gap finally caught up with the state yesterday when Fitch Ratings lowered the states bond rating one level to AA.
“The downgrade reflects the state’s reduced financial flexibility, illustrated by its reliance on sizable debt issuances during the current biennium to close operating gaps in the context of already high liabilities,” Fitch said.
Fitch joined the two other rating companies in moving the state from a negative outlook to a stable outlook. Standard & Poor’s rated Connecticut AA and Moody’s Investors Service ranked it an equivalent Aa2 in late May.
“While Fitch’s decision is disappointing, we do not anticipate that it will have much impact, if any, on the State’s cost of debt given that the State’s General Obligation bonds still carry three solid “AA” credit ratings—all with Stable Outlooks,” state Treasurer Denise Nappier said Friday.
Nappier was critical of Fitch’s decision to lower the bond rating.
Nappier pointed out that just eight weeks ago Fitch had increased the credit rating from AA to AA+ as part of a recalibration of all state and local government credit ratings. This most recent action takes the credit rating back to AA where it had been since 1997, she said.
“The decision by Fitch is, in my view, inconsistent with the improvements in Connecticut’s economic and revenue picture – including lower unemployment numbers and better-than-forecasted income and sales tax revenues,“ Nappier said.
Republican Gov. M. Jodi Rell said the rating was both good and bad news.
She said they lowered the state one level, but they also moved it from a negative to a stable rating. She said moving it to a stable rating makes it more attractive to investors.
Regardless, the news provided an opportunity for lawmakers and politicians, alike, to criticize the direction of the state’s long-term fiscal policies.
Almost all the candidates in the governor’s race sent out press releases addressing the issue.
“This downgrade proves that we can’t just ride this recession out and hope for better days,” Ned Lamont, one of two Democratic candidates for governor, said. “Connecticut’s budget crisis is the result of decades of gimmick-laden budgets and irresponsible management in Hartford, and all of this has culminated in a downgraded bond rating that will make government more expensive.”
Dan Malloy, another Democrat seeking the governor’s office, said “The issues that Fitch pointed to in making their decision are not cyclical, not primarily the result of the recession, and not revenue-driven. The downgrade is the result of an ongoing, systemic failure to make tough choices and take ownership of our problems.”
On the Republican side, Lt. Gov. Michael Fedele said the rating reflects the state’s decision to ignore its fiscal crisis.
“And that is what it is, a crisis,” he said. “In order to avoid making hard decisions the Democratically-controlled General Assembly has resorted to borrowing and fiscal gimmicks to supposedly close the budget gap. In reality, all they have done is to postpone the day of reckoning while the State’s fiscal condition continues to weaken.”
Like Fedele, Tom Foley’s campaign manager Justin Clark was equally critical of the Democratically-controlled General Assembly, even though the borrowing over the past two years has been approved or allowed by a Republican governor.
“Democrat controlled Legislature has built up spending in Hartford to the point that rating agencies have made a downgrade. This in turn will increase the cost of borrowing for the state, adding to its problems.”
R. Nelson “Oz” Griebel, another Republican candidate, said the rating is not surprising.
“This is much more than a wakeup call,” Griebel said. “Over the past several budget cycles, the spend and spin culture in Hartford has resulted in the borrowing of $1 billion in FY ’09, securitizing $1 billion in FY ‘11, spending $1.3 billion of rainy day funds without reducing costs and relying on $2 billion of federal stimulus money to fund our shrinking revenue base. What do the Rell/Fedele Administration and Democrat controlled legislature expect?”
Senate Minority Leader John McKinney, R-Southport, said he hopes the bond rating will be seen for what it is: “failing grades for an irresponsible budget solution that borrows too much, taxes too much, and does too little to reduce government spending.”
“I hope those aspiring to be in the next legislature are prepared to right the wrongs of this General Assembly by rolling up their sleeves and making the difficult, but necessary decisions to protect taxpayers and future generations by finally cutting the size and cost of state government to a level Connecticut residents can afford,” McKinney added.