Kroll Bond Rating Agency said it has downgraded Connecticut’s long-term debt rating but upgraded its outlook on the state.
The new long-term rating is “AA-,” down from “AA,” which Kroll last affirmed in May. The ratings provider said the downgrade is based on Connecticut’s “inability over the last two years to maintain balanced financial operations with significantly reducing its budget reserve fund.”
Kroll said it revised its outlook from “negative” to “stable” in part because of the state’s recent downward revisions of its revenue projections.
Kroll also assigned the new AA- rating and stable outlook to two series of bond issuances totaling $500 million, which will go on sale Aug. 3 and will be used to fund capital projects. It did the same for a 2014 borrowing issued by Connecticut Innovations, the state’s quasi-public venture capital lender, which had also previously been rated at AA. The state is ultimately on the hook for those borrowings.
After the new borrowings, Connecticut will have outstanding GO debt of approximately $18.1 million, according to Kroll.
State Treasurer Denise Nappier said the downgrade reinforces Connecticut’s need to address its current and long-term financial challenges. She said the rating puts Kroll in line with the other rating agencies.
The treasurer said the downgrade should not significantly affect her office’s upcoming bond sale.
“One saving grace is that all four of the state’s credit ratings remain in the high-quality ‘double A’ category,” Nappier said.
Other concerns noted in Kroll’s report Tuesday included:
- State’s recent difficulty in accurately projecting personal income tax levels impacted by the performance of volatile financial markets, specifically capital gains taxes, and continued lack of significant growth in wage levels;
- State debt burden is high, compared to other states, on a per capita basis and as a percentage of personal income; and,
- Connecticut has a relatively high level of unfunded pension liabilities.
