Jan. 20 (Bloomberg) -- Connecticut had its general- obligation bond rating cut to Aa3 from Aa2 by Moody’s Investors Service, which said debt and pension costs are consuming an increasing amount of its budget.
Governor Dannel Malloy, who raised income taxes the most in state history last year, said this week that receipts haven’t met estimates, leading to a $94.9 million revenue shortfall this fiscal year. The cut to the fourth-highest grade affects about $14.6 billion in outstanding general-obligation bonds, Moody’s said. The outlook was revised to stable from negative.
“Connecticut’s combined fixed costs for debt service, pension and other post-employment benefits are already high and, absent significant further reforms, will continue to consume an increasingly larger portion of the state’s budget,” Moody’s said in a release.
The rating company said Connecticut is susceptible to “financial market fluctuations” because it depends on taxes on capital gains from wealthy residents, who are concentrated in the New York City suburb of Fairfield County. Connecticut has the highest net tax-supported debt among the 50 states, Moody’s said in a previous report. The state is also the wealthiest, with per-capita personal income of $54,397 in 2009, according to Department of Commerce data.
‘Moody’s Is Wrong’
“Moody’s is wrong in its analysis of the state’s finances, and wrong to change Connecticut’s credit rating,” Benjamin Barnes, secretary of the Office of Policy and Management, said in a statement. “Connecticut has done all the right things to shore up our finances, and Moody’s has responded with a downgrade intended to satisfy their internal corporate need to deflect attention from their historic lack of credibility.”
Lower-than-expected tax collections in Connecticut mirror a trend in other states with high-wage earners, including New York, New Jersey and Massachusetts, Malloy, the Democratic governor, said in a statement Jan. 17. Fiscal 2013 revenue is projected to trail forecasts by $139 million, according to the statement.
--With assistance from Greg Chang and Esmé E. Deprez in New York. Editors: Mark Schoifet, Stephen Merelman
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