HARTFORD, CT (AP / CBSNewYork) – Moody’s Investor Service on Friday downgraded Connecticut’s debt rating, blaming the state’s high borrowing and retirement costs, and the slim prospects for replenishing the state’s rainy day fund in the near-term.
WCBS 880 Connecticut Bureau Chief Fran Schneidau On The Story
Ben Barnes, Gov. Dan Malloy‘s budget secretary, blasted the rating agency’s announcement, saying Moody’s “is wrong in its analysis of the state’s finances” and wrong to change the state’s rating for about $14.6 billion in general obligation bonds from Aa3 to Aa2. He also charged that Moody’s was trying to save face following last year’s controversy over its downgrading of federal government’s debt.
“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,” Barnes said. “Connecticut has always paid its debt, and remains an attractive issuer of public debt.”
Moody’s did not immediately respond to Barnes’ comments.
A downgrade can lead to higher borrowing costs. But state Treasurer Denise Nappier said she doesn’t expect an increase in interest costs for future bond issuances because interest rates are at historic lows. Also, she said Moody’s has had a negative outlook on the state’s credit since last summer and “at least a portion of the rating change is already priced into current interest rate levels on new debt.”
In a news release, the rating agency acknowledged that Connecticut “is taking positive steps to address its long-standing balance sheet weakness” and reduce its retirement costs through pension reforms. Moody’s said it expects the state’s revenue trends should improve as it emerges from recession and designated the state’s outlook as “stable.”
The rating downgrade comes the same week that Malloy’s administration announced that state revenues are expected to decline by about $95 million in the current fiscal year that ends June 30, or one-half of 1 percent of the annual budget. They are expected to drop by about $139 million the following fiscal year that ends June 30, 2013, or seven-tenths of 1 percent of the annual budget.
Malloy has said the fluctuation was not entirely unexpected and partially blamed a drop-off in quarterly tax payments last month from high-income earners. He has called on Barnes to come up with additional spending cuts. The details are expected next week.
“We’re going to make spending cuts. That’s what we do,” Malloy said earlier this week. “We’re going to balance the budget.”
Malloy, a Democrat, has prided himself in trying to address the state’s budget woes. Last year, the state faced a $3.5 billion budget, which Malloy said needed to be balanced with a combination of state employee concessions, tax increases and spending cuts.
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