Wall Street ratings agency Moody’s Investors Service on Friday downgraded Connecticut’s general obligation bond rating, airing concerns about the state’s heavy debt load, unfunded pension liabilities, and depleted reserves.
Moody’s lowered its rating on $14.6 billion of Connecticut’s outstanding general obligation bonds to Aa3 from Aa2. The move could make the state’s future borrowing more expensive.
The downgrade drew swift, stinging rebukes from state budget chief Benjamin Barnes and state Treasurer Denise Nappier.
“Moody’s is wrong in its analysis of the state’s finances, and wrong to change Connecticut’s credit rating,” Barnes said in a statement. “Connecticut has done all the right things to shore up our finances, and Moody’s has responded with a downgrade intended to satisfy their internal corporate need to deflect attention from their historic lack of credibility. “
“Coming on the eve of our budget release, without an imminent bond sale, suggests that the move is motivated by factors other than Connecticut’s creditworthiness,” he said.
According to his spokesman, Barnes was not immediately available to elaborate.
“The decision is certainly disappointing, but not totally unexpected given the negative outlook placed on the state’s rating by Moody’s last June,” Nappier said in a separate statement.
Nappier said Moody’s “gave scant consideration to Connecticut taking on GAAP, achieving meaningful savings on pension and health benefits, and
vowing to address long-term pension liabilities.”
Barnes noted that Moody’s, which receives approximately $170,000 per year in fees from the state for their bond rating services, is one of three agencies that rate Connecticut debt.Â
The others, Standard & Poor’s and Fitch, continue to rate Connecticut debt as AA (equivalent to Aa2 from Moody’s.)
In its assessment, Moody’s said the “rating downgrade is based on Connecticut’s high combined fixed costs for debt service and post employment benefits relative to the state’s budget; pension funded ratios that are among the lowest in the country and likely to remain well below average; and depleted reserves with slim prospects for near-term replenishment.”
However, the ratings agency also said it has a “stable” outlook on Connecticut and expects that the state’s “revenue trends should improve as it emerges from the recession,” and maintain “its new commitment to structural budget balance.”
