Divided Connecticut looks to settle budget mess

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Whether Connecticut lawmakers can craft a new budget deal by the May 9 deadline hinges on whether they can patch up partisan differences.

Given the divide at the state capitol, that’s a tall order.

Estimates released late Monday by the state Office of Policy and Management and the Office of Fiscal Analysis show that a spike in revenues, largely due to personal income tax receipts attributable to one-time factors, could generate a large transfer to the stabilization fund, pushing the so-called rainy-day account above $1.5 billion by June 30.

“We calculate a deposit of this size would increase the reserve from a low 1.2% of expenditures at fiscal year-end 2017 to $1.1 billion at fiscal year-end 2018, or a strong 6.1%, assuming the state legislature makes no mid-2018 adjustments, which appears likely,” said S&P Global Ratings.

That could help the state eliminate a roughly $363 million deficit for the current fiscal year and cushion it against future gaps.

“Today’s consensus revenue report is unquestionably good news – it is a milestone we should all recognize and appreciate,” Gov. Dannel Malloy said. “Now, we must continue our progress. In the interests of all state residents, I urge the legislature to remain disciplined in order to give the next governor and the next legislature the best chances of success in the years ahead.”

Democrat Malloy will not seek a third term this fall.

State aid to Hartford, in light of Connecticut’s “contract assistance” agreement in late March to assume about $560 million of city general obligation debt over 20 years, has become a lightning rod during budget talks.

Democrats and Republicans have passed separate adjustments to the fiscal 2018-19 spending plan.

The GOP budget proposed cutting future traditional state grants to Hartford annually after 2018-19 to match any debt assistance the state provides under the new agreement. Top Republican lawmakers strongly objected to the agreement, saying they were not consulted.

The Senate is split 18-18 while Democrats have an 80-71 advantage in the House of Representatives.

Senate Minority Leader Len Fasano, R-North Haven, filed an amendment to a bill that would require legislative signoff on any future contract assistance deals and establish a mechanism for the state to claw back any debt-subsidy payments by reducing other aid to covered cities.

The measure would enable the nascent Municipal Accountability Review Board to override any provisions if it deems a city’s financial crisis deep enough.

Hartford Mayor Luke Bronin, a Democrat who last week aborted his run for governor, sharply criticized the GOP plan.

“There should be no confusion about the fact that, if the state were to roll back the assistance included in last year’s budget, Hartford would be back in the same position of insolvency and crisis,” said Bronin. “This should not be a partisan issue.

“If the state threatens every year to throw the capital city back into crisis, we won’t be able to achieve the growth that’s necessary.”

Contrary to concerns that cities such as Bridgeport, New Haven and Waterbury would form lines at the capitol looking for a similar deal, Moody’s Investors Service called a surge in Hartford-type bailout unlikely.

“The Hartford bailout in March underscores the state’s willingness to provide support to municipalities, which is included in our credit view of the state,” said Moody’s. “There are disincentives to other communities seeking similar aid, while taking on substantial additional local government debt would weigh on the state's credit profile.”

S&P Global Ratings on April 13 downgraded Connecticut’s general obligation rating to A from A-plus. Fitch Ratings and Moody’s Investors Service rate Connecticut GOs an equivalent A-plus and A1, respectively. Kroll Bond Rating Agency rates them AA-minus. All four agencies lowered the state last year.

Connecticut is not at risk of exceeding its debt limit due to the Hartford deal, according to state Treasurer Denise Nappier.

“There is no cause for concern about any delays in issuing bonds after July 1. We have adequate bonding capacity,” she said.

Her administration estimates that room under the limit for more than $2 billion of additional authorizations now exists.

“Even if the state's debt level exceeds 90% of the debt limit, future bond authorizations would not have to be delayed and certainly taxes would not have to be increased,” said Nappier. “Exceeding the 90% level only requires the governor to recommend reductions to authorizations. It does not limit any bond-related activity nor require any legislative remedies.”

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Budgets Infrastructure Ratings Sell side Dannel Malloy Denise Nappier State of Connecticut City of Hartford, CT Connecticut