All four Wall Street credit rating agencies reaffirmed their bond ratings for Connecticut’s general obligation bonds, but three of the four offered a “negative outlook” on the state’s credit rating in advance of a bond sale.
Moody’s Investor Services and Kroll Bond Rating Agency gave Connecticut bonds on negative outlook. Fitch affirmed its stable outlook, while Standard & Poor’s continued its negative outlook, first put in place in March 2015.
“While we expect the state to solve the budgetary gaps with recurring solutions, we believe that the weakening demographics will continue and place negative pressure on the state’s economy and finances in the next few years, while the very high fixed costs reduce flexibility and present additional challenges,” Moody’s analysts said in a statement.
Treasurer Denise Nappier said a “negative outlook” means that a credit rating will be under review for one to two years.
“Today’s news is bittersweet, no doubt,” Nappier said. “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.”
Republican legislative leaders had a slightly different view of the ratings and “negative outlook.”
“This is not ‘bittersweet’ as the Treasurer suggests, but simply bitter news,” House Minority Leader Themis Klarides, R-Derby, said. “Our state’s finances remain on shaky ground and Connecticut’s ability to meet its obligations is being called into question.”
Senate Minority Leader Len Fasano, R-North Haven, with two of the four agencies lowering their past “stable” assessments every lawmaker should be concerned.
“We have billion dollar deficits in the near future,” Fasano said. “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.”
But Nappier said the state is addressing its weaknesses and bringing its spending in line with future revenues.
Nappier applauded Democratic Gov. Dannel P. Malloy for proposing “across-the-board cuts” and a “permanent reduction in the state’s workforce.”
Malloy administration Budget Director Ben Barnes said he appreciated that the rating agencies observed Connecticut’s “strong governance with the ability to make mid-year budget adjustments.” The agencies also cited concerns about the $406 million rainy day fund and its long-term obligations.
“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.”
Nappier said the state has demonstrated a “steadfast commitment to consistent and full funding of the state’s long-term liabilities.”
The rating news comes in advance of an upcoming sale of $550 million in tax-exempt General Obligation bonds. There will be an exclusive order period for retail investors on March 15 and pricing for institutional investors on March 16.
