The state's bond rating was downgraded Friday in reaction to the moves by Gov. M. Jodi Rell and the Democratic-controlled state legislature to borrow money for operating expenses and balance the budget with "one-shot'' revenues that cannot be used in the future.
While the state has borrowed money for operating expenses in the fiscal crises of 1991 and 2003, the legislature made the extremely rare move this year to borrow money even before the fiscal year started. Without the borrowing, the state would have a projected deficit of about $1 billion in the 2011 fiscal year, which starts on July 1.
Some candidates for governor and lawmakers complained loudly Friday about the move, and there was plenty of blame being assessed. Lt. Gov. Michael Fedele, a fiscally conservative Republican, blamed the Democratic-controlled legislature. Longtime business executive Oz Griebel, who is facing Fedele and Tom Foley of Greenwich in the August 10 primary, blamed both the Rell-Fedele administration and the legislature. Some Democrats blamed the Republican governor.
The views were varied between Republicans and Democrats, and there is disagreement over the exact impact of the downgrade.
"While Fitch's decision is disappointing, we do not anticipate that it will have much impact, if any, on the state's cost of debt given that the state's general obligation bonds still carry three solid "AA" credit ratings -- all with stable outlooks,'' state Treasurer Denise L. Nappier, a Democrat, said in a statement.
The official action was that Fitch Ratings - one of the best-known bond-rating agencies on Wall Street - downgraded the state's general obligation bonds from AA+ with a negative outlook to AA with a stable outlook. But Fitch is only one of three major rating agencies, and it alone does not the final say on the state's bond rating.
Nappier says that the downgrade now makes the Fitch rating "comparable to the state's credit ratings from the other two credit rating agencies: Moody's Investors Service rates the state's GO bonds at Aa2 with a stable outlook and Standard and Poor's rates the state's GO at AA with a stable outlook.''
The state treasurer's office had received a heads-up on the rating change more than a week ago, Rell said Friday.
"We knew it was coming,'' Rell said. "There is good news and bad news in this. The bad news, of course, is they lowered it by one point. But the good news is we've gone from a negative rating to a stable rating. That's good because as part of the legislation that passed as part of the budget adjustment this year, you may remember that I insisted that any additional funds that come into the state - surplus - actually be dedicated to reducing our debt. So that helps us in stabilizing our bond rating.''
Noting that the economy is getting slightly better, Nappier questioned the downgrade.
"The decision by Fitch is, in my view, inconsistent with the improvements in Connecticut's economic and revenue picture - including lower unemployment numbers and better-than-forecasted income and sales tax revenues,'' she said in a statement. "While it is true that the state faces many challenges ahead in the 2012 and 2013 fiscal years, as do most other states, my office stands ready to help the next Governor and General Assembly meet those challenges in fiscally-responsible ways."
At the same time, Nappier described the downgrade as "a veritable caution sign about the perils of relying too heavily on debt to balance the budget.''