HARTFORD, CT – Moody’s Investors Service released a report Tuesday that says Connecticut has suffered from weak job growth since the recession and continues to be hindered by “an inefficient transportation infrastructure.”
However, Moody’s praised the state for building up a Rainy Day Fund to help weather the next downturn.
From 2008 to 2018, Connecticut’s private-sector employment increased by 0.8%, and there are fewer government jobs today than there were in 2008.
“Connecticut ranked 49th for employment growth in the same decade, with lower-wage jobs accounting for much of the growth. An inefficient transportation infrastructure remains a hindrance,” said Marcia Van Wagner, vice president at Moody’s. “The hobbled economy places the state at a disadvantage when competing with other states for business and residents.”
Moody’s also cited as a problem the state’s net loss in population – between 2010 and 2018, Connecticut experienced the third largest rate of decline in its working-age population.
“Connecticut’s economy will remain hampered by a declining and aging population that gives the state one of the weakest population and labor force profiles in the country,” Van Wagner wrote. “The demographic trends weigh on the state budget, as the pool of taxpayers fails to keep up with the costs of servicing the state’s large pension burden.”
Van Wagner said the state has an advantage in its “well-educated workforce” and the report also highlighted the strength of the manufacturing and aerospace industry in the state.
“The manufacturing sector, which has added jobs in the past two years, is a potentially significant growth vehicle,” Van Wagner said.
While a declining working-age-population-to-pension-debt ratio doesn’t bode well for the state, Van Wagner praised the actions Connecticut leaders have taken to weather a recession.
“Even without an obvious catalyst for a strong recovery in the next economic cycle, structural changes have the state better prepared to withstand a recession than prior to the financial crisis,” Van Wagner said. “During the next downturn, the state will benefit from less exposure to severe fluctuations in the finance sector and budget rules that have built reserves, which are at a record high.”
Connecticut is projected to have about $2.8 billion in the Rainy Day Fund by the end of the fiscal year in June. That’s mostly the result of the volatility cap, which was approved as part of the bipartisan budget two years ago.
“When fixed costs (pension contributions, retiree healthcare contributions, and debt service payments) are high, reliance on spending reductions to counter revenue shortfalls can result in a proportionately larger impact on public services than if those spending adjustments were spread across the entire budget,” Van Wagner said. “With Connecticut’s fixed costs at approximately 30% of the general fund, every 1% reduction in revenue represents about 1.5% of the budget outside of fixed costs. The impact of revenue shortfalls on services raises political pressure to solve budget gaps with nonrecurring solutions, among which Rainy Day Fund withdrawals are the most transparent and do not contribute to future liabilities.”
Last week, state Treasurer Shawn T. Wooden and Gov. Ned Lamont said the state’s $894.6 million bond sale continued to reflect the renewed investor confidence in Connecticut’s long-term fiscal stability.
Wooden gave retail investors priority and total retail orders received during this period were over $511 million, the second-highest amount on any bond sale in Connecticut history, exceeded only by the historic March 2019 General Obligation bond sale, which had retail orders of $828 million.
Orders from both retail and institutional investors reached $1.7 billion. Since orders exceeded bonds available, the state was also able to lower the interest rates it pays to purchasers of the bonds.
Gov. Ned Lamont’s office also played up a report from Bloomberg News that the bond market has stopped penalizing Connecticut.
S&P Global Ratings has rated Connecticut’s general obligations bonds an “A.” Moody’s Investors Service and Fitch Ratings rank them one level higher at “A1” and “A+,” respectively.
Connecticut’s next Bond Commission meeting will be Wednesday, Dec. 18.