Connecticut Gov. Dannel Malloy has invited legislative leaders to meet with him within days in an attempt to break a budget logjam as state deficit projections worsen.
Malloy budget director Benjamin Barnes warned Thursday that the shortfall for fiscal 2017, which ends June 30, could wipe out the state’s rainy-day fund, which has dwindled to $235 million. The governor ordered an immediate hiring freeze and Barnes warned of layoffs if the state cannot balance the budget or reach labor concessions.
Plummeting income-tax collections largely account for Connecticut’s revenue problem and budget imbalance. The state is staring at a $1.7 billion deficit for the new fiscal year, although that shortfall could worsen with new estimates.
Bond rating agencies cited persistent budget imbalance and unfunded pension liability in three general obligation downgrades to the state last year.
S&P Global Ratings assigns its AA-minus rating and negative outlook. Fitch Ratings and Kroll Bond Rating Agency also assign AA-minus ratings, though with stable outlooks. Moody's Investors Service rates the bonds an equivalent Aa3, also with a negative outlook.
The General Assembly’s finance, revenue and bonding committee on Thursday approved a revenue package that will essentially lay the groundwork for discussions with Malloy. Both Democratic and Republican leaders said the package includes no tax increases.
Malloy released a $40.6 billion biennial budget in February. The Republicans countered with a $40.3 billion spending plan.
Also on Thursday, the bonding panel unanimously approved a bill backed by state Treasurer Denise Nappier that would create an income tax-secured bonding program. Nappier has said the program could enable Connecticut to rebuild reserves and help restore the state’s reputation in the capital markets.
A dedicated portion of the state’s personal income tax revenues would back the bonds.
Speaking to the panel on Tuesday, state deputy treasurer Lawrence Wilson called the program “a market-tested practice used successfully in other states.”
David Ardayfio, managing director at Barclays Capital, one of Connecticut’s senior managers, said the program could help the state save on interest rates.
Committee co-chairman Scott Frantz, R-Greenwich, asked how much the state could save “within a couple of months,” should the bill pass immediately.
“We expect right now in terms of basis points, about 30 to 40 basis points,” said Ardayfio. “If you want numbers, on a billion-dollar deal you could save $30 [million] to $40 million, based on this new program.”