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INVESTING/PORTFOLIO STRATEGIES

Moody’s downgrades Connecticut’s general obligation debt rating, citing pension expenses

Denise Nappier
Denise L. Nappier

Moody's Investors Services downgraded Connecticut's general obligation debt rating to A1 with a stable outlook from Aa3 with a negative outlook in part because of its pension expenses, confirmed Moody's spokesman David Jacobson.

Connecticut's special tax obligation senior and subordinate lien bonds have also been downgraded to A1 from Aa3, as have bonds secured by state agreements to pay debt service with funds that are deemed appropriated, the ratings service said in a report announcing its decision to downgrade its ratings for the state.

Mr. Jacobson said in an email that “Connecticut's fixed expenses including pensions … are among the highest in the country and rising.” He added that “there are also very significant budget gaps that need to be met for this year and the coming biennium, decreasing reserves, and demographic trends that are not in the state's favor.”

The downgrades reflect continuing erosion of Connecticut's finances, evidenced by the pending elimination of its “rainy day” fund, growing budget gaps and rising debt levels, according to the report. The pressures created by growing fixed costs, coupled with weak economic performance, are unlikely to relent and will raise the risk of credit-negative actions such as deficit borrowing or backloaded financings, it added.

Denise L. Nappier, state treasurer and principal fiduciary of the $31.5 billion Connecticut Retirement Plans & Trust Funds, Hartford, said in an emailed statement that the announcement from Moody's “underscores the serious challenge that the state faces. Clearly, a course correction is necessary, and that more disciplined path must lead in the direction of responsibly addressing our long-term liabilities.”

Ms. Nappier added that she had proposed to the state's Legislature this session “that it authorize tax-secured revenue bonds. This is precisely the type of approach that … would … I believe, improve the GO credit rating over time.”