A protracted state budget stalemate is expected to result in reduced credit ratings for municipalities in coming months, S&P Global Ratings said Friday, before lawmakers passed a $40.7 billion Republican budget and the governor vowed to veto it.
With the impasse on the budget persisting and Gov. Dannel P. Malloy’s revised executive order reducing state aid to municipalities by 38 percent, or $928 million compared to 2017 funding levels, S&P analyst Victor M. Medeiros said many cities and towns don’t have the reserves available to manage the impact of those cuts.
“The longer the impasse,” Medeiros wrote, “the greater the likelihood we would lower credit ratings, potentially by multiple notches, on those communities most exposed to liquidity pressures.”
S&P Global issues ratings to 88 of the state’s 169 municipalities, and “virtually all” of those would have to absorb cuts of 1 percent or more of general fund revenues under Malloy’s executive order. About 37 communities, including Hartford, which is struggling to avoid bankruptcy, will have to absorb cuts in aid representing 10 percent or more of revenues, the analyst said.
The approved GOP budget spares communities from major cuts in state aid but does not provide the $40 million the Democratic spending plan would have provided to Hartford. Malloy has vowed to veto the GOP plan.
Saying the ratings agency will continue to monitor the outcome of the budget impasse and react accordingly, Medeiros noted, “The implication of persistent fiscal strain at the state level has affected credit quality for local governments across the state and will continue to do so.”
Even once a budget is approved, “any outcome will remain challenging to some local governments,” he said.
