HARTFORD, CT — Wall Street issued a harsh warning to Connecticut policymakers Monday when it placed the ratings of 26 municipalities and three regional school districts under review for a credit downgrade.
The 26 cities and towns and three regional school districts include a mix of urban, suburban, and rural communities including New Haven, Bridgeport, Hamden, South Windsor, Ashford, and Woodstock, among others. All those communities face state funding cuts under the executive order that are equal to the amount of money they have available in their fund balance or cash.
In addition, Moody’s Investors Service, one of four Wall Street rating agencies, assigned negative outlooks to ratings of another 25 Connecticut municipalities and three regional school districts and maintains the existing negative outlook on the rating of one town.
Of those 25, Moody’s assigned negative outlooks to 14 local governments and two regional school districts and reiterated an existing negative outlook for one local government facing cuts equal to between 75 percent and 100 percent of their fund balance or cash.
Also within the 25, Moody’s assigned negative outlooks to 11 local governments and one regional school district, which, in the absence of other revenue measures or spending cuts, would need to raise property taxes by 10 percent or more to make up the difference.
In total, Moody’s announcement says it is applying new scrutiny to 51 of Connecticut’s 169 municipalities and six regional school districts.
“The current budget impasse highlights the ongoing vulnerability of funding that the State of Connecticut provides to its local governments,” Moody’s said in a statement.
Connecticut’s largest municipal lobby said the warning from Wall Street was avoidable.
“Such action only serves to reinforce that while state legislative leaders claim to have been meeting in good faith to resolve the state budget impasse, the time for action on a state budget agreement is now,” Joe DeLong, executive director of the Connecticut Conference of Municipalities, said Monday. “This announcement highlights the past nine months of failures by the governor and General Assembly to enact a state budget.”
He said if the ratings of these communities are downgraded it will have a “devastating impact” and potentially “explode their property tax rates, and limit their ability to fund necessary municipal projects in the short-term and long-term.”
Specifically, a credit downgrade means a municipality or school district will face higher interest rates on borrowing, which can mean significant cost increases on debt service.
DeLong added: “Sadly, this could have been avoided.”
Chris McClure, a spokesman for Gov. Dannel P. Malloy, said it reinforces their message.
“This warning by Moody’s is yet another clarion call that we need an adopted budget and we need it now. Just today, Governor Malloy presented the General Assembly with a budget that is balanced reasonably and responsibly — and could help mitigate the harm to our cities of continuing without a budget. We cannot continue to pretend that inaction is inconsequential.”
Senate President Len Fasano, R-North Haven, said that ignores the fact that Connecticut’s General Assembly did pass a budget that Malloy vetoed.
“This is devastating news for our state. The governor’s decision to reject the only budget that passed the legislature, along with years of failed policies, created the instability our towns and cities face today,” Fasano said. “It created chaos on top of an already damaging fiscal crisis. Those who refused to override the governor’s veto are complicit in this failure to fund towns, cities and social services.”
Last week, Standard & Poor’s changed its outlook for Connecticut’s general obligation bonds from “stable” to “negative.”
“The outlook change reflects what we believe to be increasing constraints on Connecticut achieving long-term structural balance, highlighted by the state’s delay in enacting a fiscal 2018-2019 biennium budget for the period that began July 1, 2017,” S&P Global Ratings credit analyst David Hitchcock said. “These budget constraints include revenue weakness because of slow economic growth and recent population decline and reduced revenue-raising flexibility after substantial tax increases were instituted in the last two biennium budgets.”
Malloy unveiled another budget proposal Monday as legislative leaders tried to fashion a bipartisan budget without the governor’s help.
The Moody’s list is available here in a Google Spreadsheet.