Gov. Dannel P. Malloy’s pension proposal has had its doubters in the General Assembly, as well as the state treasurer and the state comptroller. Add Standard & Poor’s to the list.
S&P said the changes could affect its perception of the state’s bond ratings.
The ratings agency assigned a negative outlook to $650 million worth of 2015 Connecticut bonds. S&P first changed its outlook to negative in March. The action came after Gov. Dannel P. Malloy issued a proposal last month to split the state’s pension plan.
S&P said said the negative outlook reflects its view of budget pressure caused by weak revenue growth. It said evidence of this has occurred in the governor’s recent proposal to defer a large portion of the state’s pension liabilities through 2032, as well as the multiple rounds of midyear budget cuts in fiscal years 2015 and 2016, the relatively sizable budget gap the state closed in its recently adopted fiscal 2016-2017 budget, and the lack of budgeted additions to its modest reserve levels at a time of national economic growth.
GianCarl Casa, undersecretary for legislative affairs at the state Office of Policy and Management, said, “We agree with the rating agency that the way in which pension reform is implemented will be important and we look forward to working with all stakeholders on a reform package that will save the state billions of dollars.” He added that the governor’s proposal has been vetted by “nationally renowned experts” who feel it shows the promise of considerable improvement in the state’s long-term fiscal stability.
The S&P report said there are hurdles to adoption of the proposal, including approval by labor unions and the state legislature, and it is unclear what the final form of any pension changes might look like or what effect on a future actuarial valuation might be.
Along with the negative outlook, S&P assigned an ‘AA’ rating to the 2015 bonds and affirmed its ‘AA’ rating on the state’s outstanding general obligation bonds, its ‘AA-‘ rating on state appropriation-secured debt, and its ‘A’ rating on Connecticut’s moral obligation debt outstanding. The outlook on all debt is negative.
However, there is a light at the end of the tunnel, in the analysts’ view. The report said, “Should the state fall out of structural budget alignment, or adopt significant deferrals to its pension liabilities, we could lower our rating. However, if Connecticut is able to maintain near structural balance over our two-year outlook horizon, we could potentially revise the outlook to stable.”
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