Lawmakers resolved the 2017 deficit last week when they sent a $19.76 billion budget to Democratic Gov. Dannel P. Malloy, but they’ve been unable to resolve the $259.1 million deficit in 2016.
With just six weeks left in the 2016 fiscal year, it’s likely some of the $406 million in the Rainy Day Fund will be used to erase the stubborn red ink.
Office of Policy and Management Secretary Ben Barnes said there’s not enough time to make up for the revenue shortfalls announced during the last week of April.
But instead of looking backward, the state should look toward the future.
“We should be confident that the budget just passed for next year is honestly balanced with conservative revenue projections and real cuts to spending on programs,” Barnes said Friday. “It adjusts to the new economic reality, as it is based almost entirely on recurring and structural reductions in spending.”
However, on Thursday at least two of the four credit rating agencies downgraded Connecticut’s bonds a notch prior to a bond sale—signaling a lack of confidence in the state’s ability to weather a future recession.
“In our opinion, Connecticut has less flexibility to meet unanticipated revenue shortfalls, such as those that occurred in fiscal 2016, and may be poorly positioned should there be a national economic downturn in the next several years,” S&P Global Ratings credit analyst David Hitchcock, said. “The state is not budgeting to restore reserves in fiscal 2017, and projected out-year budget gaps in 2018 and beyond could prove troublesome in view of Connecticut’s historically cyclical finances.”
Standard & Poor’s and Fitch Ratings lowered Connecticut’s general obligation bonds from AA to AA-. Moody’s Investors Service and Kroll Bond Ratings affirmed their Aa3 and AA ratings, respectively, but gave the bonds a negative outlook, which means they will be under review for one or two years.
Moody’s Investor Services maintained its rating of Connecticut and cited its high per capita personal income level as a positive attribute, but warned investors that “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.”
Those high fixed costs include Connecticut’s high debt levels and unfunded pension liabilities.
State Comptroller Kevin Lembo will certify the deficit on June 1. The 2016 fiscal year ends on June 30.