S&P Global Ratings said Thursday Gov. Dannel P. Malloy's proposed budget could negatively affect smaller towns while benefiting the cities.
"From a credit standpoint, S&P Global Ratings believes that communities lacking the reserves or budgetary flexibility to cushion outsized budget gaps will feel the greatest effects of the proposed budget," the agency said.
While Groton, which has an AA+ credit rating, could see its $12.1 million reserve balance depleted by a proposed $8.2 million reduction in state aid and $3.9 million increase to pension costs, Hartford (BBB-) could see funding levels increase, "probably" eliminating a nearly $41 million fiscal year 2018 budget gap, S&P said.
S&P considers the shifting of costs from the state to municipal governments as credit positive for Connecticut, but credit negative for many of the affected towns.
"Those [municipal] governments lacking the budgetary flexibility to make revenue and expenditure adjustments will be the most vulnerable to immediate downgrades," S&P concluded.
The legislature's budget proposal is expected on April 27. S&P said its routine credit monitoring will continue through reconciliation of both budgets.