A transfer from Connecticut's rainy-day fund to cover a projected $316 million budget deficit for fiscal 2016 would be a credit negative, Moody's Investors Service said Monday in a commentary.
One week earlier, state budget Director Benjamin Barnes informed Comptroller Kevin Lembo of the pending shortfall for the fiscal year ending June 30. He referenced a sharp drop in personal income-tax collections, notably during key collection months March and April.
The transfer from the $406 million budget reserve fund to fully cover the gap would leave Connecticut with just $90.2 million in the fund, or merely 0.5% of next year's adopted biennial budget, according to Barnes.
Moody's rates Connecticut's general obligation bonds Aa3 with a negative outlook. Last month, S&P Global Ratings and Fitch Ratings lowered the state's ratings one level to AA-minus with stable outlooks. Kroll Bond Rating Agency rates the state AA and negative.
"To varying degrees, other northeastern states, including New Jersey, New York and Massachusetts are also experiencing lagging tax receipts," Moody's said in a commentary. Connecticut "has weak overall reserves, high fixed costs and a lagging economy."
Fortune 500 behemoth General Electric Co. cited a high-tax and anti-business climate when it announced in January that it would move its corporate headquarters from Fairfield, Conn., to Boston.
Based on collection trends through May, state personal income -tax collections will total $9.2 billion in fiscal 2016, more than $600 million, or about 6%, short of original budget estimates.
"Although corporation taxes are also underperforming targets, the PIT miss dominates the revenue shortfall, which is partly offset by projected underspending," said Moody's.
