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CT’s Budget Crisis Leads to Alarm Bells on Wall Street

October 16, 2017 By Staff
CT’s Budget Crisis Leads to Alarm Bells on Wall Street

S&P, Moody's, and Fitch have all warned about the long-term impact of Connecticut's budget crisis in recent weeks.

The three major credit rating agencies on Wall Street are issuing the same warning about Connecticut in recent weeks: the budget crisis is putting the state’s short- and long-term financial health at risk.

The most recent warning came from S&P Global Ratings. Their releases are paywalled, but CTNewsJunkie‘s Christine Stuart had a great summary of their “warning” on Friday:

Without a budget for 105 days, Standard & Poor’s Global Ratings sent the state a message Friday when it downgraded its outlook for Connecticut’s general obligation bonds to “negative.”

It didn’t lower the bonding rating from A+, but it revised its outlook from stable to negative for the state’s $19 billion in general obligation debt.

This builds on prior releases from the other two major agencies in late September, as Connecticut wrapped up month three without a budget.

From Fitch on September 27:

Nearly three months after the close of fiscal 2017, Connecticut still has not enacted a budget that addresses an estimated biennial budget gap of $3.5 billion in fiscal years 2018 and 2019. Fitch Ratings believes the ongoing delay makes it more difficult for the state to implement sustainable solutions that address the structural budget gap as savings from already agreed to union concessions has been incorporated in gap projections.

Fitch warned it could change its outlook for Connecticut based on “the ongoing impasse.”

Fitch downgraded Connecticut’s Issuer Default Rating to ‘A+’ on May 12, 2017 based on our reduced expectations for the state’s economic and revenue performance and deteriorating operating flexibility. The Stable Outlook at this rating level reflected our assessment that the state would continue to proactively manage its challenged financial operations, although the ongoing impasse could change Fitch’s expectations for the direction of the state’s credit quality.

And Moody’s downgraded Hartford’s general obligation (GO) debt in late September, citing “uncertainty from the state budget impasse” and “increased likelihood of default as early as November.”

Of course, bankruptcy in Connecticut’s capital city could lead to further downgrades from these agencies, both for the city and the state of Connecticut.