Connecticut Readies $300M as Deficits Loom

As Connecticut works to close sizeable deficits in the current and coming fiscal years, it is coming to market today with a two-day retail order period for $300 million of new-money general obligation bonds.

Institutional pricing begins on Wednesday for the serial, fixed-rate bonds that are expected to have maturities out to 2029.

Fitch Ratings on Wednesday affirmed its AA rating for the state's GOs with a stable outlook.

"What's helping Connecticut right now is they built up a budget reserve balance that's over 8% of spending and it's a higher level going into this downturn than they had going into the last downturn," said analyst Douglas Offerman. "There are some big risks for Connecticut. They have tended to have volatile revenue and in the last downturn they ended up using up their budget reserve and having to borrow in order to close some deficits."

Much of the plan to close the deficits in the current year and fiscal 2010 through 2011 rely on one-time resources such as federal stimulus dollars and using up the state's $1.38 billion reserve fund over the three years which poses some risk, Offerman said.

Moody's Investors Service assigns its Aa3 rating with a stable outlook to the bonds and Standard & Poor's rates the bonds AA with a stable outlook.

The state has $10 billion of GO debt outstanding.

M.R. Beal & Co. is book-running senior manager on the deal and Siebert Brandford Shank & Co., Morgan Stanley, and Ramirez & Co. are co-senior managers.

Day Pitney LLP is bond counsel. P.G. Corbin & Co. and Acacia Financial Group Inc. are financial advisers on the deal.

Last week, Gov. M. Jodi Rell proposed a $18.85 billion all-funds operating budget in fiscal 2010 and $19.53 billion in fiscal 2011. Rell's budget closes a projected $6 billion deficit over the biennium but the General Assembly says the deficit is $2.6 billion higher.

"The reality is we're going to have to cut a lot more," said Derek Slap, spokesman for the Senate Democratic majority. "She's in some ways punted to the legislature to have to make a lot of the difficult decisions."

Jeffrey Beckham, spokesman for the Connecticut Office of Policy and Management, said the governor's budget is balanced and the difference with the Assembly is over projections for how much revenue will drop.

"We're a little more optimistic than they are," Beckham said, adding that the state will have a better sense of its revenue picture in April.

While budget negotiations begin before the start of the next biennium on July 1, lawmakers are working to close a $1 billion gap in the current fiscal year.

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