Lawmaker: Connecticut in Rating Agencies’ Crosshairs

March 24, 2015

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Standard & Poor’s negative outlook on Connecticut’s debt could foreshadow even more adverse credit actions unless the state fixes its structural deficit problems, said one state lawmaker.

“We could get our credit stepped on even more,” Sen. Scott Frantz, R-Greenwich, said in an interview after S&P revised from stable its outlook on the state’s general obligation debt. “We’ll be in line for some additional downgrades next year, or if not downgrades, then negative outlooks.”

Frantz is deputy minority leader of the Senate Republican caucus and ranking member of the General Assembly’s finance, revenue and bonding committee and commerce committee. He also serves on the State Bond Commission.

S&P revised its outlook on March 10 while affirming its AA rating on Connecticut’s $16 billion of outstanding parity general obligation debt. S&P cited sluggish revenues as responsible for the $1.1 billion projected budget gap – 6% of expenses – that Connecticut will need to close in its fiscal 2016 budget, which begins July 1.

Gov. Dannel Malloy, a Democrat, presented a two-year, $40 billion budget to the General Assembly last month. Democrats wield majorities of in 87-64 and 21-15 in the House and Senate, respectively.

Fitch Ratings and Moody’s Investors Service rate Connecticut GOs AA and Aa3, respectively.

State budget Secretary Benjamin Barnes had more gloomy news on Friday, projecting a $132.8 million general fund shortfall for the current fiscal year, 2015. That amount is up from last month by $71.6 million, he said in a letter to state Comptroller Kevin Lembo.

Barnes cited a $45 million reduction in federal government reimbursement for medical claims, plus an $18 million reduction in projected health provider tax collections, due to the use of transferrable tax credits.

“We continue to work to address the remaining deficit through administrative actions, including heightened scrutiny of position refills and contract requests in order to ensure that year-end expenditures are limited to those that are critical for state operations,” Barnes said in his letter.

Barnes called April “a significant month” for revenue, given personal income tax collections.

According to Frantz, the perception of Connecticut as a wealthy state masks glaring fiscal problems.

“I call it the quiet disease,” he said. “This state has been great at spending beyond its means, and a lot of people see Fairfield County as a piggy bank.”

State Treasurer Denise Nappier last month warned that reliance of $325 million of debt service in the budget to cover operating costs could generate a backlash in the capital markets. Such a move “would only add fuel to the state’s fiscal challenges, and may harm its reputation among bondholders and the investment community at large,” she wrote Malloy.