Moody’s downgraded Connecticut’s rating on Friday and state officials are saying the investors’ service is wrong in its analysis of the state’s finances.
The state’s general obligation bond rating went from Aa2 to Aa3, which will affect approximately $14.6 billion in outstanding general obligation bonds, according to Moody’s.
“Moody’s is wrong in its analysis of the state’s finances, and wrong to change Connecticut’s credit rating,” Benjamin Barnes, Gov. Dannel Malloy’s Secretary of the Office of Policy and Management, said in a statement. “ Connecticut has done all the right things to shore up our finances, and Moody’s has responded with a downgrade intended to satisfy their internal corporate need to deflect attention from their historic lack of credibility.”
Moody’s lists the state’s strengths as repaying deficit bonds issued during the prior recession years early, commitment to structural budget balance in the current biennium and being the wealthiest state in the nation with per capita personal income levels well above national levels.
However, they list weaknesses, including fixed costs for debt, pension, and other post-employment benefits relative to budget being among the highest in the nation; very low funding ratios for pension systems; vulnerability to financial market fluctuations; and weak GAAP-basis balance sheet due to negative UUFB and depletion of rainy day fund.
“Moody’s lowered the rating for Connecticut below where it has been since April 2010 even though Connecticut’s fiscal health has significantly improved during that period,” Barnes said, adding, “Today, we have a structurally balance budget, have converted to GAAP, have fully funded our current pension obligations and seen their funding ratio rise, have negotiated significant pension benefit concessions from organized labor, have negotiated significant employee contributions to retiree health benefits, and have begun to add jobs to the state economy.”
Barnes said Moody’s receives approximately $170,000 per year in fees from the state for their bond rating services and it’s one of three agencies that rate Connecticut debt.
Standard & Poor’s and Fitch continue to rate Connecticut debt as AA, which is equivalent to Aa2 from Moody’s, Barnes said.
House Republican Leader Lawrence F. Cafero Jr. said Moody’s downgrade is “more evidence that the state’s fiscal status is uncertain and must be dealt with by the legislature.”
He called the Malloy administration’s rejection of the downgrade as “illogical.’’
“We have to hope for the best but prepare for the worst possible financial scenario. The marketplace – the credit rating agencies – is the final arbiter when it comes to assessing the fiscal health of the State of Connecticut. And the marketplace is signaling that we have a problem,’’ Cafero said in a statement.
