Moody's Releases 'Negative Outlook' For State's Bonding Prospects
By JON LENDER
October 28, 2009
courant.com/news/connecticut/hc-negative-bond-outlook-1028.artoct28,0,7993288.story
Wall Street released a "negative outlook" for Connecticut's bonding prospects Tuesday, unleashing worries that state taxpayers may have to pay millions more to finance future borrowing by the state government.
Republican Gov. M. Jodi Rell said she had sent legislative leaders a copy of a new Moody's Investor Services report, in which the bond rating agency downgraded the outlook for the state's bonds from "stable" to "negative." Rell called it "an alarm signal that we clearly cannot afford to ignore."
The investor service said it was not changing the rating of Connecticut's existing bonds, which remains "Aa3." However, a "negative outlook" can presage a change in the bond rating, which would cost the state much more in interest to finance its debts, officials said.
Moody's said "the negative outlook reflects the choices made to address the state's biennial 2010-11 budget gaps as well as the shortfall for fiscal 2009, including a majority of non-recurring solutions and deficit financing, combined with a credit profile that includes ... long-term liabilities."
"Connecticut used one-time solutions to close slightly over half of the shortfall," the Moody's report said. "These solutions create future structural budget gaps and leave the state with significantly reduced flexibility to address ... fiscal pressures that may arise."
Rell, who refused to sign the new budget, said the report is "clear evidence" that more spending cuts are needed.
"I believe it would be imprudent to override my veto" of one of the recent "budget implementer" bills," Rell wrote in a letter Tuesday to legislative leaders. Democratic legislators had talked of convening this week to try to override Rell's veto, but on Tuesday they were saying that an override looks doubtful.
The president pro tem of the Senate, Donald Williams, D-Brooklyn, said "we all should be concerned about the structural holes in the budget" but "now is not the time for the governor to try to disown parts of the budget that she initially proposed — such as securitization, borrowing, and one-time fixes. Most troubling is [her] failure ... to control spending in her agencies."
House Speaker Christopher Donovan, D-Meriden, said, "We can take some comfort in the fact that our bond rating remains excellent, even as we just begin to emerge from the most difficult recession in decades."
House Republican Leader Lawrence F. Cafero Jr. of Norwalk said the Moody's report "is further evidence that the Democratic budget is full of holes and over-reliant on one-shot revenues and volatile tax streams that sink during bad economic times. ... "The Democratic tax hike, the largest in state history, was ill-conceived because, as Moody's has noted, it relies even more on volatile personal income related to Wall Street."
Copyright © 2009, The Hartford Courant
