Governor Rell: Gov. Rell Writes Legislators, Warning of Bond Outlook Downgrade


{Seal of the State of Connecticut}

STATE OF CONNECTICUT
EXECUTIVE CHAMBERS
HARTFORD, CONNECTICUT  06106

M. Jodi Rell
Governor

FOR IMMEDIATE RELEASE
October 27, 2009
 Contact: 
860-524-7313

Governor Rell Writes Legislators,

Warning of Bond Outlook Downgrade

 

Move from ‘Stable’ to ‘Negative’ is ‘Alarm Signal We

Cannot Afford to Ignore,’ Governor Tells Lawmakers

 

 

            Governor M. Jodi Rell today sent legislative leaders a copy of a new report from Moody’s Investor Services in which the bond rating agency downgrades the outlook for Connecticut’s General Obligation bonds from stable to negative. Moody’s is revising its outlook for eight other states, the Governor noted. Governor Rell, who also sent the report to rank-and-file members of the Legislature, called the downgrade “an alarm signal that we clearly cannot afford to ignore.”

 

            The investor service said it was not changing the rating of Connecticut’s existing bonds, which remains “Aa3.”

 

            Moody’s said the downgrade was motivated in large measure by the new, two-year state budget, which relies excessively on borrowing and one-time fixes to close a deficit of about $8.5 billion. Governor Rell, who refused to sign the budget into law, said the report is clear evidence that further reductions in state spending are necessary.

 

            “Being forced to pay higher interest rates on our bonds would have serious and lasting financial effects in both the near- and long-term,” Governor Rell said. “Moody’s feels, as I do, that the budget relies far too much on debt and one-shot revenues to prop up continued unaffordable levels of spending. When that is combined with our already high per capita debt load, the state of the economy and other factors, it threatens to make our bonds less attractive to investors.

 

            “Given this situation, I feel it would be imprudent to override my recent veto of one of the budget ‘implementer’ bills,” the Governor said. “Rather, I believe our time would be far better spent working together to develop a comprehensive deficit mitigation plan. It must be a plan that does more than assemble a pastiche of quick fixes and one-time infusions of cash to let us squeak by during the worst of the economic crisis – steps that do nothing but push off the bad news for another few years. We must finally accept the necessity – indeed, the inevitability – of further reductions in state spending if we are to avoid setting up future generations for fiscal failure.”

 

            Governor Rell noted in the letter that many other states are taking similar action. New York legislators are convening in emergency session on November 10 to consider solutions to a deficit there that has already grown to more than $3 billion.

 

            “What is needed now is sure and decisive action to reduce the size and cost of state government so as to ease the burden on Connecticut’s struggling families and employers, avoid the pitfalls of quick fixes and position our state for long-term financial security and opportunity,” Governor Rell said.

 

            A copy of the letter and the report from Moody’s is attached.

 

October 27, 2009

 

The Hon. Donald E. Williams Jr.                       The Hon. Christopher G. Donovan

Senate President Pro Tempore              Speaker of the House of Representatives

Room 3300, Legislative Office Building Room 4106, Legislative Office Building

 

The Hon. Martin M. Looney                             The Hon. Denise Merrill

Senate Majority Leader                                    House Majority Leader

Room 3300, Legislative Office Building Room 4106, Legislative Office Building

 

The Hon. John McKinney                                 The Hon. Lawrence F. Cafero Jr.

Senate Republican Leader                                House Republican Leader

Room 3400, Legislative Office Building Room 4200, Legislative Office Building

 

Dear Leaders:

 

Attached you will find a new report from Moody’s Investor Services in which the outlook for Connecticut General Obligation bonds is lowered from stable to negative.

 

While Moody’s has affirmed the Aa3 rating for approximately $12 billion in currently outstanding bonds from the state, this is an alarm signal that we clearly cannot afford to ignore. Being forced to pay higher interest rates on our bonds would have serious and lasting financial effects in both the near- and long-term.

 

A swift and cooperative response from all branches of state government is required. An essential component of that response must be a willingness on all sides to make even deeper reductions in state spending than we have made to date.

 

The report from Moody’s makes it abundantly clear that a decisive factor in the lowered outlook is the excessive use of one-time fixes – especially borrowing and securitization of an as-yet unidentified future revenue stream – to close the budget gap. This, the report states, leaves structural holes in future budgets that will only be exacerbated by the absence of federal stimulus money in future years.

 

In essence: Moody’s feels – as I do – that the budget relies far too much on debt and one-shot revenues to prop up continued unaffordable levels of spending.

 

In light of this report, as well as the continued weakness demonstrated in recent consensus revenue estimates and the latest monthly estimate by my Office of Policy and Management of the projected budget deficit, I believe it would be imprudent to override my veto of the General Government budget implementer, House Bill 7006 (An Act Implementing Certain Provisions of the Budget Concerning General Government).

 

As I noted in vetoing the bill, we simply cannot tie the hands of state leaders – or exempt certain branches of government from vital cost-cutting measures – at a time of continued revenue shortfalls and serious economic pressures. Nor can we afford to direct additional funds to highly worthwhile – but not absolutely essential – programs and policies.

 

Rather, I believe our time would be far better spent working together to develop a comprehensive deficit mitigation plan. It must be a plan that does more than assemble a pastiche of quick fixes and one-time infusions of cash to let us squeak by during the worst of the economic crisis – steps that do nothing but push off the bad news for another few years. We must finally accept the necessity – indeed, the inevitability – of further reductions in state spending if we are to avoid setting up future generations for fiscal failure.

 

Connecticut, of course, is not alone in facing this necessity. As you are probably aware, New York legislators are convening in emergency session on November 10 to consider solutions to a deficit there that has already grown to more than $3 billion. Our state, meanwhile, is only one of nine where Moody’s is currently revising its outlook.

 

What is needed now is sure and decisive action to reduce the size and cost of state government so as to ease the burden on Connecticut’s struggling families and employers, avoid the pitfalls of quick fixes and position our state for long-term financial security and opportunity.

 

I look forward to working with you in the coming weeks to address these issues.

 

 

Sincerely,

 

  

M. Jodi Rell

Governor

  

cc:        Members of the Connecticut General Assembly

 

 

 

 

 

 

 

 

Content Last Modified on 10/27/2009 1:30:08 PM

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