HARTFORD, CT — It’s only been 18 years since this last happened, but a Wall Street rating agency upgraded its outlook on Connecticut’s general obligation bonds this week.
On Tuesday, Standard & Poor’s upgraded Connecticut’s credit rating from stable to positive and affirmed its “A” rating on approximately $18.3 billion of the state’s general obligation bonds.
The news comes a week after a presentation from Gov. Ned Lamont, state Treasurer Shawn Wooden, and Office of Policy and Management Secretary Melissa McCaw.
“The outlook change to positive reflects the increased likelihood that Connecticut will preserve recently replenished reserves at what we view as strong levels, and that the state’s high debt levels could moderate if the governor’s proposal for a new ‘debt diet’ is carried through into policy,” S&P Global Ratings credit analyst David Hitchcock said.
Lamont promised not to ask the legislature — under the rules of the state’s new volatility cap — for permission to use a portion of the estimated $2.4 billion in Rainy Day Funds to help balance the state budget. He also vowed to put about $500 million less on the state’s credit card every year.
Hitchcock said the rating agency will be monitoring Connecticut to assess whether “…the governor’s proposal to shrink future debt issuance might be adhered to over the long run.”
Another cause of concern that would cause the agency to lower the rating would be “significant budgetary stress due to an unexpected economic recession, in view of Connecticut’s high fixed Costs.”
“While Connecticut is moving in the right direction under the structural reforms in Governor Lamont’s budget, there is still much work to be done,” McCaw said. “The Governor’s budget maintains commitment to our revenue, volatility, spending and bonding caps. It is also critically necessary that we further demonstrate to credit rating agencies, bond holders, and future investors that Connecticut can adopt a budget for this biennium that enacts reforms and takes steps to move toward structural balance, strengthens our Budget Reserve Fund, reduces borrowing, fosters a pro-growth environment, and mitigates growth in our fixed costs.”
While Lamont’s administration took credit for the upgraded outlook, one Republican lawmaker attributed the improvement to last year’s bipartisan budget.
“We put strong limits on what the state could put on its credit card and we passed policies that promoted stability. As a result of these bipartisan efforts we are continuing to make progress,” Senate Republican Leader Len Fasano, R-North Haven, said.
He said it’s concerning that Lamont wants to “undo the very bipartisan policies and approach that resulted in the positive news we received today.”
The state is preparing to sell $850 million of general obligation bonds during the last week of March. A positive outlook is an indication that a credit rating agency sees a higher likelihood of a credit rating upgrade over the medium term.
The other three credit rating agencies have affirmed their credit ratings and outlooks at existing levels, with Moody’s at A1 with a stable outlook, Fitch at A+ with a stable outlook, and Kroll Bond Ratings at AA- with a negative outlook.