Only weeks after Gov, Dannel Malloy signed a fiscal 2018 budget, Connecticut has a new round of fiscal crises.
With two bond sales coming up next week and another next month, Malloy must craft a mitigation plan to close a projected deficit of at least $207 million while devising a strategy to keep the special transportation fund from spiraling into insolvency.
State law requires the governor to submit a mitigation plan within 30 days when a shortfall exceeds 1% of the general fund.
Malloy intends to brief the media on the transportation fund on Thursday afternoon.
He told bond rating agencies that the fund, which backstops critical transportation projects, could develop annual deficits starting next summer, and even go broke in less than three years.
“It’s the same things I’ve been telling you guys for years, that we’ve got do something about the transportation fund,” Malloy told reporters late Wednesday in Hartford. “Revenue is coming in, and was predicted to come in slower in large part because people are buying less gas and gas is cheaper.
“So absolutely I said that.”
Malloy in February 2015 announced a 30-year, $100 billion transportation infrastructure program, but the initiative has barely gotten off the ground.
The governor expects the budget deficit to rise, given in delays in implementing cuts in medical benefits that were enacted with the roughly $41 billion biennial spending plan.
“Unless they’re selling new hats that deliver rabbits, a mitigation plan means there only two things you can do – cut spending, raise revenue or do a combination of both,” he said as a sense of déjà vu hovered over the capitol.
Malloy met earlier in the day with legislative leaders about a deficit burgeoning so soon after he signed a four-months-late budget on Oct. 31. Lawmakers said they discussed medical cuts and implications of any federal tax bill that passes, but not the transportation fund.
“It never came up,” said House Speaker Joe Aresimowicz, D-Berlin. “If Tony Guerrera were here, he’d say ‘let’s go with tolls.’ ”
Guerrera, a Rocky Hill House Democrat, has championed the resumption of tolls in Connecticut, which removed them from Interstate 95 in the mid-1980s. All of its neighboring states have some form of tolling.
Connecticut’s fiscal crises have prompted renewed discussion about the resumption of tolls as a revenue stream. The state’s Department of Transportation has estimated that tolls could raise $700 million annually by around 2024.
“No tolling on I-95. That’s just a crazy situation,” Tom Wright, chairman of tri-state think tank Regional Plan Association, said Tuesday at Columbia University in New York.
Connecticut intends to sell $400 million of taxable general obligation bonds and $350 million of GO bond anticipation notes, both competitively.
S&P Global Ratings and Fitch Ratings rate Connecticut GOs A-plus, while Moody’s Investors Service and Kroll Bond Rating Agency rate them A1 and AA-minus, respectively.
S&P’s negative outlook, said analyst David Hitchcock, represents a one-in-three chance that it could lower its rating within two years. S&P, in one of several negative rating actions against the state over the past two years, lowered its outlook from stable on Oct. 13.
“The outlook reflects what we believe to be increasing constraints on achieving long-term structural balance, highlighted by Connecticut's delay in enacting a fiscal 2018-2019 biennium budget,” said Hitchcock.
Concerns include above-average debt, high unfunded pension liabilities and large unfunded other postemployment benefit liabilities, all significant to S&P, as well as population declines and economic stagnation. Cyclical performance and weak reserves are also red flags.
Fitch labeled Connecticut one of its states to watch for 2018, where developments throughout the year could affect credit quality. Others include New Jersey, plus Illinois, Kentucky and Louisiana. "The state has struggled in recent years with revenues failing far short of projections,” said Fitch.
Municipal Market Analytics expects the new deficit to trigger aid cuts, with municipalities to suffer.
"There is a significant medium-term downside scenario developing for the paper of middle-class and poorer Connecticut towns," said MMA.
Malloy said he expects the General Assembly to reconvene for a special session before Christmas, contradicting what top lawmakers told him earlier and promoting a sparring session with the media.