Barring a dramatic turn of events on Friday, Connecticut appears headed to miss its midnight budget deadline, which would force Gov. Dannel Malloy to run the state by executive order.
Malloy, a Democrat, said lack of a spending plan would force draconian cuts to state services.
Connecticut, which during the week borrowed $300 million through a private placement with Barclays Capital, has received six bond-rating downgrades over 13 months, with rating agencies citing budget imbalance, dwindling income-tax receipts and high fixed costs.
Moody’s Investors Service rates Connecticut general obligation bonds A1, while S&P Global Ratings and Fitch Ratings assign A-plus ratings. Kroll Bond Rating Agency rates them AA-plus.
The only states with ratings below double-A are Connecticut, Illinois and New Jersey.
Connecticut operates on a biennial budget. Deficit projections for the FY18-19 plan have reached as steep as $5 billion.
“What constitutes ‘essential operations’ remains poorly defined from a legal perspective,” said S&P. “Making appropriations at levels under the prior budget could prove problematic, since the prior budget would be unbalanced as the result of a decline in forecasted revenue.”
The House of Representatives, which would not discuss Malloy’s $317.5 million quarterly mini-budget, offered a two-year, $40 billion budget on Thursday that they say could go up for a vote on July 18. The plan would increase the sales tax to 6.99% from 6.35%, increase the hotel occupancy tax to 16% from 15% and permit municipalities to impose a 1% tax on restaurant meals.
House Speaker Joe Aresimowicz, D-Berlin, opposes the mini-budget. Senate leaders favor at least debating it. While Democrats hold a slim 79-72 advantage over Republicans in the House, the Senate is split 18-18.
“The short-term budget was not a perfect solution, nor was it intended to be,” Malloy told reporters at the State Capitol in Hartford. “Rather than act on it, we were treated to multiple and conflicting statements by both leaders of the House.”
Connecticut’s liquidity is “tenuous at best,” said state Sen. Scott Frantz, R-Greenwich, who co-chairs the legislature’s finance, revenue and bonding committee.
“I cannot emphasize how critical it is that we, as a legislature, vote on a budget that shores up our fiscal foundation so that we do not need to rely on bond proceeds to pay for daily expenses.”
The state, and capital city Hartford, received an additional blow Thursday when insurer Aetna Inc. confirmed it would relocate its corporate headquarters to New York. Hartford had been home to Aetna since 1853. The company employs 5,800 people statewide.
“Now that Aetna has made its decision final, I hope it serves as a clear and powerful message to leaders of both political parties in Connecticut that we need to take bold action quickly,” said Hartford Mayor Luke Bronin. “Hartford and the state of Connecticut as a whole are facing fiscal crises that are decades in the making, and can’t be fixed with stop-gaps or band aids.”