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August 6, 2020

Despite pandemic fallout, Fitch scores CT debt ‘A+’

state capitol minimum wage HBJ File Photo The state Capitol in Hartford.
By Joe Cooper

Forecasting how state budgets will be impacted by the COVID-19 pandemic, a major Wall Street rating agency on Wednesday reaffirmed its “A+” rating of Connecticut's budgetary liabilities.

The report by Fitch Ratings Inc. also gave a ratings outlook of “stable” on the state's general obligation (GO) bonds even though the pandemic is delivering a blow to its fiscal performance.

Fitch said the state's budget reserve fund, at $2.5 billion as of the end of fiscal 2019, will play a major part in supporting its liquidity and providing a source of financial resilience through the second half of its 2020-21 biennium budget.

"... .the state appears well positioned as it works to identify the dimensions of the budget gap in the second half of the biennium and solutions for closing it," Fitch analysts wrote in the report. "Solid budgetary performance before the current biennium and through most of fiscal 2020 enabled the state to accrue substantial excess resources in its budget reserve fund."

The ratings agency delivered its report to state governments just days after Kevin P. Lembo, Connecticut's State Comptroller, warned that the state’s economic gains since the depths of the health crisis could soon slip away without more federal aid. Lembo also reported that the state finished the 2019-20 fiscal year on June 30 with a $128.1 million deficit.

Fitch said the reserve fund would rise by $340 million after netting the residual deficit against an estimated $468 million deposit tied to pre-pandemic revenues.

“Although a more recent forecast is not yet available and the possibility of additional federal aid is a key unknown, the governor is contemplating a deficit mitigation plan with rescissions and revenue changes to narrow the gap, after which legislative actions or further reserve draws would be necessary,” Fitch said.

Meanwhile, the Connecticut Mirror this week reported that receipts from a major subset of the state income tax were running $175 million ahead of expectations Tuesday based on an ongoing review of filings since the July 15 deadline. And those receipts, released by the legislature’s Office of Fiscal Analysis, can only increase between now and when the review wraps on Aug. 7.

Just one week ago -- with the review only halfway complete -- the legislators were delighted to learn that income tax receipts were just $350 million short of the state’s collections goal.

And both last week’s assessment and the latest one are a far cry from late April, when Gov. Ned Lamont was warning state reserves were shrinking — and that Connecticut would be in debt by summer of 2021.

National outlook

Nationwide, states are generally well positioned to address the economic and revenue volatility caused by the COVID-19 outbreak, Fitch said. However, the fiscal protections they built since the 2008-2010 Great Recession will be tested.

"Many states are facing significant revenue gaps in fiscal 2021," said Fitch Senior Director Karen Krop. "As a result, many states will need to take additional steps to achieve budgetary balance, which may include non-recurring actions and even deficit borrowing, which historically has rarely been used by states."

A CT Mirror report contributed to this story

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