Moody’s Downgrade of Connecticut’s Bond Outlook a Cautionary Tale for Rhode Island?
We are now broaching a topic about which I know almost nothing. But certain aspects of this situation sound familiar.
The bond rating agency Moody’s Investors Service announced on Monday it has lowered its outlook for Connecticut’s general obligation bonds from stable to negative. At the same time, the agency said it held its rating for the state’s outstanding GO bonds — amounting to approximately $12 billion — at Aa3.
The agency released a report describing the factors it used to come up with its negative rating, which included the state’s need to issue deficit bonds to resolve this year’s budget shortfall, and the non-recurring solutions and deficit financing used to close revenue gaps in the state’s 2010 – 2011 biennial budget.
“Connecticut used one-time solutions to close slightly over half of the (biennial budget’s) shortfall,” the report says, and “these solutions create future structural budget gaps and leave the state with significantly reduced flexibility to address additional fiscal pressures that may arise due to a delayed and/or weaker than expected recovery from the worst economic recession since the depression.”
Rhode Island has tapped one time fixes – tobacco revenue in at least two years and, most recently, federal stimulus money – to close state budget gaps. This is clearly not something that makes bond raters comfortable.
Rhode Island has not, however, gone to the length of issuing bonds to cover the prior year’s annual operating shortfall. (If we have, I don’t think I want to know.)
Moody’s specifically mentioned the [Connecticut] General Assembly’s issuing of $947 million in bonds to help cover last fiscal year’s shortfall.
Break out the champagne! Another state has done worse than us in the budgeting department!