Moody’s Investors Service late Monday cut its outlook on Connecticut’s general obligation rating to negative from stable, citing one-shot solutions used to balance the state’s fiscal 2010-2011 biennial budget.
The outlook change affects approximately $12 billion of GO debt. Moody’s affirmed the state’s Aa3 rating.
To balance its budget, Connecticut plans to sell $947 million of deficit bonds, securitize $1.3 billion of a yet-to-be-determined revenue stream, and to deplete its budget reserve fund by the end of the biennium. The state also relied on federal stimulus funds to fund ongoing needs, Moody’s said in a report.
“Connecticut used one-time solutions to close slightly over half of the shortfall,” the report said. “These solutions create future structural budget gaps and leave the state with significantly reduced flexibility to address additional fiscal pressures that may arise due to a delayed and-or weaker than expected recovery from the worst economic recession since the Depression.”
Moody’s also cited debt ratios that “are among the highest in the nation” and vulnerability to financial fluctuations because the state is home to many high-wealth individuals and people employed in the financial sector. As positives, the report cited Connecticut’s status as the wealthiest state in the nation with per-capita personal income levels that are “well above national levels” and early repayment of deficit borrowing sold in fiscal 2002 and 2003.
Gov. M. Jodi Rell allowed the state’s $37.57 billion budget to become law in September without her signature. Disagreements between the Republican governor and the Democratic-led General Assembly over spending cuts and new taxes delayed the budget’s adoption by two months.
