All three bond rating agencies have now upgraded Connecticut’s general obligation bonds. It’s a first for the state in over 20 years.
Moody’s Investor Services, S&P Global Ratings, and Kroll Bond Rating have all increased Connecticut’s bonds over the past month.
Kroll Bond Rating was the latest to upgrade Connecticut’s bonds this week.
“Connecticut’s third credit rating upgrade over the past 45 day– all occurring for the first time in over two decades – makes it clear that the smart fiscal policies we’ve practiced over the past few years are working and that we must stay the course,” State Treasurer Shawn Wooden said. “As a result, our bonds will continue to generate greater demand, allowing Connecticut to borrow at even more attractive interest rates, saving taxpayers millions of dollars and creating long-term financial sustainability.”
Wooden said it’s an indication that Connecticut has made smart decisions when it comes to its state budget.
“When I first came into Office in 2019, the markets were performing exceptionally well but I knew this wasn’t sustainable,” Wooden said. “So, we immediately took a number of calculated steps to prepare for a potential economic downturn, all of which put Connecticut in a far better position when compared to many other states following the unanticipated financial distress caused by the COVID-19 pandemic.”
He said the upgrade is evidence that “our smart fiscal policies and management over the past few years are working.”
The rating upgrades come after Wooden and the Office of Policy & Management’s Secretary Melissa McCaw presented information to the agencies about Connecticut’s fiscal controls, as well as economic data.
Kroll Bond Rating said in its analysis that it upgraded Connecticut because of the progress the state has made over the past three years in building up its Rainy Day Fund to 15.3% of general funds.
That’s not to say Connecticut doesn’t have its fiscal challenges.
Kroll Bond Rating cited the unfunded pension liabilities as one of Connecticut’s credit challenges.
“Unfunded pension liabilities and tax-supported debt burden are high relative to personal income, each exceeding 3.0x the respective U.S. averages,” analysts wrote.
S&P Global Ratings says it upgraded Connecticut’s bonds because of its attempts to continue to moderate its debt.
“Notably, Connecticut has moderated its debt growth to an average 2.5% annually (fiscal years 2018 to 2020) compared to 7.3% annually (fiscal years 2014 to 2017). We expect that the continued pace of debt issuance, coupled with the already rapid amortization, should contribute to further debt burden moderation,” S&P Global Ratings credit analyst Timothy Little said.
Little also cited the volatility cap and the revenue cap, created in the bipartisan 2017 budget, as reasons for the upgrade.
But he also highlighted the risk.
“We consider Connecticut to have elevated social risks compared to the sector given its older population and higher cost of living. These demographic trends could present long-term credit risks to the state’s economic and budgetary performance,” Little said. “However, we believe Connecticut’s historically strong management and policy framework will help manage this risk.”
The Treasurer’s Office is preparing to offer $1 billion of General Obligation bonds in four different series next week.