Bond Rating Downgrade From Stable Should Not Be Ignored

Moody’s Investor Services report in which they downgraded the rating for Connecticut’s General Obligation bonds from stable to negative is Wall Street’s way of telling Connecticut what many of us have been saying for years: we cannot continue borrowing and spending like there’s no tomorrow. I’m extremely concerned over this bond rating downgrade, and it should not be ignored. As the report indicated, “the negative outlook reflects the choices made to address the state’s biennial 2010-2011 budget gaps as well as the shortfall for fiscal 2009, including a majority of non-recurring solutions and deficit financing, combined with a credit profile that includes significant long-term liabilities.” If we were a family and had a credit rating like this we’d be working at that Renaissance Fair like in those television commercials for FreeCreditReport.com. Unfortunately, those commercials are funny, but our new bond rating is not.

Last week the Office of Policy and Management projected a $388.5 million deficit for the current fiscal year, a number likely to grow in the months ahead. No one wants to be the bad guy. Spending cuts are painful and unpopular, but the sooner we act the better off we’ll be. We can’t ignore reality. This line from the Moody’s report should be a warning: “Connecticut also compares unfavorably on measures such as debt ratios that are among the highest in the nation, pension funding levels that were among the lowest in the country in 2008 even before the market turmoil is factored, and other post employment benefit (OPEB) liabilities that are larger than the size of the state’s annual operating budget.”

While the Moody report was bad news for Connecticut, I am hopeful it will finally compel the majority party to take this financial crisis seriously when we meet in the coming months to work out a deficit mitigation plan.