HARTFORD, CT — For the first time in two decades one of the four Wall Street firms upgraded Connecticut’s credit rating Wednesday.
Moody’s Investor Services upgraded Connecticut’s approximately $16 billion of outstanding general obligation debt to Aa3 from A1. The move comes a few months ahead of the sale of up to $800 million general obligation bonds.
“Moody’s upgraded Connecticut’s rating to Aa3 because of the state’s continued commitment to numerous governance improvements which have already borne fruit in the accumulation of significant budgetary reserves and good financial performance through the pandemic,” Moody’s analysts said. “The reserves are critical in mitigating budgetary inflexibility created by the state’s heavy debt and retiree benefit liabilities, which are among the highest of all states. The policies creating the reserves also reduce the impacts of revenue volatility, promote more robust funding of the state’s pension systems, and lead to better budget management.
The new rating also reflects Connecticut’s high income and wealth levels offset by a lagging economy and consecutive years of population loss.
The change to Connecticut’s credit rating comes a few months after state Treasurer Shawn Wooden and Office of Policy and Management Secretary Melissa McCaw made presentations to all four Wall Street credit rating agencies.
“The state’s first credit rating upgrade in over 20 years is a direct result of our smart fiscal policies practiced during the past few years that have led to Connecticut having a record high Budget Reserve Fund and a strong cash position,” Wooden said. “Connecticut will now have the ability to access funding for critical infrastructure investments at even more attractive interest rates which will strengthen our economic recovery and save taxpayer dollars in the long-term.”
Wooden said 13 states were downgraded but Connecticut was deemed stable.
“What we’re doing with being fiscally responsible is all paying dividends,” Wooden said.
During recent meetings with credit rating agencies, Wooden said, “In May 2017, the State’s credit rating slipped to single “A” credit rating category. I think I speak for all of us when I say Connecticut is not comfortable being in the single “A” credit rating category and, FYI, we will never be comfortable there.”
The presentations highlighted the state’s improving economy and fiscal controls and included a comparison of Connecticut’s reserves, liquidity, debt levels, pension funding, employment, housing market indicators as well as other data as compared to other higher-rated states.
“We are a national leader in combating the COVID-19 pandemic, and due to our wise investments, robust savings, better than anticipated revenues, and generous federal support we are emerging as a financial leader among the states,” Gov. Ned Lamont said. “We have also been committed to paying down our long-term pension liabilities, and been prudent in our budget management, as we ended the last fiscal year in surplus and are projected to do so to the end the current fiscal year.”
McCaw said they will be able to maintain stability with the social services they are providing and it means they will be able to look at borrowing to pay for investments that will help get people back to work.
Republican lawmakers attributed the credit upgrade to the 2017 bipartisan budget deal.
“The bipartisan budget crafted in 2017 that implemented historic cost and savings controls is now bearing fruit,” Senate Republican Leader Kevin Kelly said. “Working collaboratively and including Republican ideas created policies that surpassed expectations and put our state on better footing for years to come.”
But Republicans worry the Democratic Party will squander the gains that were made.
“It’s more difficult today to find partners across the aisle who are willing to pursue more budgetary reforms,” House Minority Leader Vincent Candelora said. “A once unimaginable amount of federal aid has the majority party focused on spending, expanding existing government programs or creating new ones.”
The amount of money the state has been borrowing is around $1.6 billion per year. Early on in his tenure, Lamont said he was putting the state on a “debt diet” and would be reducing the amount of money he put on the state credit card.
Republicans worry this means he could start borrowing more money than originally planned.