Despite the still-sluggish state economy, four Wall Street ratings agencies have reaffirmed the state’s bond rating.
But while the Fitch Ratings agency maintained the bond rating, it reduced Connecticut’s overall outlook from stable to negative, pointing to the state’s “reduced fiscal flexibility at a time of lingering economic and revenue uncertainty.”
“The enacted budget for the new biennium delays repayment of deficit borrowing, adds to an already high debt load, and fails to rebuild the state’s financial cushion,’’ Fitch analysts concluded, citing the state’s high debt and pension obligations.
Three other agencies – Moody’s Investors Service, Standard & Poor’s, and Kroll Bond Ratings - maintained the outlook at stable.
“I am pleased to see that our double-A ratings have all been retained by the major rating agencies,” Ben Barnes, Gov. Dannel P. Malloy’s budget director, said in a statement. “Fitch’s concerns about our vulnerability to continued economic weakness are reasonable, but ultimately not so great as to change our high-quality rating. They have affirmed that our revenue forecasts are reasonable, that our budget is balanced, and that our bonds continue to be an extremely safe investment in line with our AA rating.”
State Treasurer Denise Nappier, who oversees bond sales, said, ”While I am disappointed with Fitch’s negative outlook, I don’t foresee this opinion by one agency impacting our upcoming bond sales. With that said, our state does have a way to go to achieve full, sustainable recovery over the long haul. That means, among other things, coming to grips with the state’s long-term unfunded obligations while honoring its commitments to our most vulnerable citizens. I remain optimistic that we will get there in due course. Simply put, we have no choice – we can’t afford to do otherwise.”
The Malloy administration issued a statement that said, “This change in outlook is not expected to increase the state’s borrowing cost as this is not a downgrade to the state’s ratings.”
The bonds were rated now because of two bond sales that will be held in the coming weeks. The state will be selling about $225 million in bonds for UConn 2000, which is designed to make improvements to the state’s flagship university. The second sale for general obligation bonds will fund $200 million of state projects.
But Republicans raised questions about the Malloy administration’s tax and spending policies that they say have contributed to economic sluggishness.
“Either the Malloy administration is looking at the negative impact of their fiscal mismanagement through rose-colored glasses, or they’re just not being honest with the people of Connecticut,’’ said Senate Republican leader John McKinney of Fairfield. “The facts speak for themselves. Connecticut’s bond ratings are worse than they were when Governor Malloy took office, they have not recovered, and they are heading in the wrong direction.’’
McKinney cited a direct quote from the Fitch agency that said, “The negative outlook is based on the state’s failure to return to more structurally sustainable budgeting and rebuild flexibility at a time of unusually slow economic and revenue recovery.’’
Senator Rob Kane, the ranking Senate Republican on the legislature’s budget-writing committee, said, “I think it’s indicative of this administration’s tax-and-spend policy. The business community sees it. There’s no stability. There’s no growth in business or in industry. Unemployment remains stagant, at best, and yet we continue to spend.’’