Kroll Bond Rating Agency has assigned a stable outlook and AA- rating to $600 million in Connecticut general obligation bonds for capital improvements, citing efforts Gov. Dannel P. Malloy is taking to tackle the budget deficit.
"The proposed [Fiscal Year] 2018 and FY 2019 budget, though inclusive of areas of uncertainty, represents the administration's efforts to change the structure of its budget, as well as address inequities in its school funding system," the review states.
The rating also reflects the state's "willingness to address long term financial risks, as evidenced by ... restructuring of the future stream of pension obligation for its State Employment Retirement System to increase stability and predictability," Kroll stated.
Kroll assigned Connecticut the ratings for 2017 general obligation bonds Series A and B, which will help fund various capital improvement projects, as well as outstanding general obligation bonds. After the 2017 A and B Series bonds are issued, the state's bonded debt will total approximately $18.9 billion, Kroll said.
Kroll has also affirmed the long-term rating of AA- with a stable outlook on the General Fund Obligation Bonds 2014 Series A issued by Connecticut Innovations, Inc.
Strengths include Connecticut leaders' willingness to make fiscal adjustments to put the budget in balance, as well as a commitment to maintain a "strong" financial management framework to track revenues and monitor budget performance, the agency said.
Concerns that could derail progress, however, include the state's inability over the last two years to maintain balanced financial operations without significantly reducing the Budget Reserve Fund.
Connecticut's increasing budgetary burden related to fixed costs, specifically debt service, pension contributions, and Medicaid expenditures, is also worrisome, Kroll stated, noting, "Connecticut has a relatively high level of unfunded pension liabilities."