Dan Haar: State’s first ‘positive’ bond outlook since ‘01 comes amid strife
Connecticut earned a positive credit rating outlook Tuesday from Standard & Poor’s, marking the first time in 18 years, according to the state Treasurer’s office, that any of the big three Wall Street bond ratings agencies has raised the state’s outlook to positive.
A positive outlook — driven by the state’s budget reserve fund — means S&P could raise the state’s ratings, including its A rating on the main general obligation bonds.
We’re still waiting for the first increase in the state’s actual bond rating since the first year of the millennium. Surprising that we never had an upgrade in the decent years of 2004-06, but so be it. For a state that remains beleaguered and subject to backsliding, we’ll take what we can get.
The bulging reserve fund, set to exceed $2.2 billion this summer, will amount to more than 10 percent of the budget. OK, let’s call it adequately funded, but for us, that’s bulging, considering it was at 1.2 percent at the end of fiscal 2017, as S&P noted.
“Our positive outlook anticipates at least a one-in-three possibility that Connecticut could retain high reserves through the upcoming biennium, despite weak revenue and demographic trends, or that future debt issuance could be substantially reduced,” S&P said in a report.
Only one-in-three? Clearly, Connecticut’s shaky fundamentals remain a big worry, of course. Still, if we had online gambling, I’d take those odds.
The improvement could be a sign that Wall Street likes tolls, which tend to lower debt.
State Treasurer Shawn Wooden said the outlook change came just days after he, Gov. Ned Lamont and Melissa McCaw, Lamont’s budget chief, made presentations to the ratings agencies at the Capitol.
“This positive change in Connecticut’s credit outlook is another significant step in the right direction,” Wooden said. “The next step is to follow through on plans to address our current economic challenges and continue building a stable foundation for future growth and financial sustainability.”
That’s easier said than done, as we learned last year when few if any of the recommendations of a growth and sustainability commission made it into the budget. “The governor has proposed a budget that adds to existing reserves, but doing so in the final adopted budget might require politically unpalatable measures, such as reductions in local aid,” the S&P report said.
Senate Minority Leader Len Fasano, R-North Haven, credited the reserve fund increase to an insistence by Republicans that tax collections on capital gains and dividends over a certain threshold go into the reserve rather than the general fund for spending.
”The bipartisan budgets of the last two years put a stop to the one-party Democrat rule that hurt our state,” Fasano said in a written release. “This news is further evidence that now is not the time to turn back to the tax-and-spend policies of the previous administration that hurt our state for so many years.”
He’s right about the reserve fund but overstates former Gov. Dannel P. Malloy’s budget record; Malloy actually cut spending on regular government, though he increased borrowing. Now Fasano and other Republicans want to borrow to fix the state’s roads and bridges, starving other capital projects around the state, rather than install tolls, Lamont’s preferred method.
As that debate rages on, S&P seems to prefer tolls as a way to reduce debt. “The governor’s proposal to implement new highway tolling could provide a non-tax revenue source to support Connecticut’s significant transportation capital needs,” the report said.
Moody’s and Fitch Ratings both affirmed Connecticut’s credit ratings and maintained their “stable” outlooks, Wooden said in a release.
Connecticut is set to sell $850 million in general obligation bonds this month and the rates investors demand will send a message about Wall Street’s view of Connecticut’s condition.
The biggest issue as the state plows ahead: In order to keep debt down and avoid dipping into the reserve fund, the state must either raise taxes and risk losing more residents, or cut spending in ways that no one has figured out how to do.
“While today’s news is welcomed,” McCaw said in a written release, “it carries with it a caution, as well....Many of the problems our state faces are many decades old and there are not easy fixes to resolve them, but the rating agencies have made clear those reforms and difficult choices will lead to a brighter financial future for our state.”