September 19, 2017

Moody's: CT's long-term fiscal prospects 'stark'

Connecticut's budget crisis has been stabilized in the short-term by Gov. Dannel P. Malloy's executive order, but the long-term outlook may be more "stark," says a fresh analysis from Moody's Investor Service.

In its report that compares Connecticut to Pennsylvania, which recently passed a budget Moody's says it cannot fully fund, Moody's analyst Marcia Van Wagner notes that Malloy's executive order anticipated a more than $1 billion budget gap. But the state is carrying a $2 billion cash balance that "looks stable for the time being," Van Wagner wrote.

Of greater concern, Van Wagner notes, is the risk to the state's liquidity, since about half of its available cash balances consist of bond proceeds. Without a budget, the state can't issue new debt, so "this resource will shrink as capital projects draw down bond proceeds," Van Wagner notes.

"We believe it is likely that the state legislators will come to agreement on the budget well before the risk of a liquidity crunch would materialize, and whether the state would even need to tap these balances is uncertain," she said.

That said, Connecticut faces heavy debt and pension liabilities over the long term. Hobbled by lower tax receipts, a structural budget imbalance and growing fixed costs, the state's long-term obligations are "formidable," she said.

A lagging state economy adds to Connecticut's challenges, Van Wagner adds, noting Moody's expects the state to be one of the last to recover recessionary job losses some time in 2019.

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