Connecticut's bond outlook took a hit Wednesday from Moody's Investors Service, which revised it to negative from stable citing budget strains from weakening demographics.
"While we expect the state to solve the budgetary gaps with recurring solutions, we believe that the weakening demographics will continue and place negative pressure on the state's economy and finances in the next few years," Moody's said as it affirmed Connecticut's Aa3 rating in advance of a $550 million Series 2016A GO bond pricing, expected next week.
Proceeds will fund capital improvement projects. Connecticut has roughly $16 billion in GO debt.
Last week, state officials said its fiscal 2016 budget deficit – Connecticut operates on a biennial spending plan -- had widened to $220 million from $20 million due mostly to underperforming personal income taxes. Gov. Dannel Malloy a month earlier told agency heads to cut 6% from their budgets to balance his plan for fiscal 2016-17.
Moody's affirmed its Aa3 rating for special tax obligation senior lien and junior lien bonds, and capital reserve fund bonds. Very high fixed costs could pose additional challenges, Moody's added.
A message seeking comment was left with state Treasurer Denise Nappier's office.
Last month, Gov. Dannel Malloy ordered agency heads to cut 6% from their budgets to balance his proposed biennial spending plan for fiscal 2016-17.
According to state budget Director Benjamin Barnes, Connecticut state has lost 40,000 high-wage jobs over the past several years. That has affected revenue from capital gains taxes as well as income, corporate and sales taxes.
Connecticut's financial stresses, which contrast with enviable per-capita wealth metrics notably in Fairfield County near New York City, also made national headlines when Fortune 500 behemoth General Electric Co. announced it would relocate its headquarters from Fairfield, Conn., to Boston.
In March 2015, S&P revised its outlook to negative while Fitch Ratings went the opposite way four months later, improving its outlook to stable. Fitch affirmed its AA rating and stable outlook Wednesday.
"Connecticut is an interesting case study, as it remains one of the wealthiest states in the nation, has strong liquidity yet remains one of the most leveraged, with outsized debt ratios," Janney Capital Markets municipal analyst Eric Kazatsky said in a commentary. According to Moody's, Connecticut is the wealthiest state nationally with per-capita income of 141% of the U.S. average.
While Connecticut still funds all of its actuarially required contributions for its pension plans, its adjusted net pension liability ratio ranks it second worst nationally behind Illinois, said Kazatsky.
