Connecticut upgraded by Moody’s with big GO deal ahead

Donna Alberico

Moody’s Ratings has upgraded the state of Connecticut to Aa2 from Aa3.

Moody’s analysts credited the upgrade to Connecticut’s governance improvements put in place in 2018, which have reduced the state’s liabilities and improved its reserves. 

The state will soon take the new rating to market with a sizable general obligation deal. 

Connecticut has a $1.1 billion general obligation bond sale on its for September, according to the State Treasurer’s office.

Connecticut’s bond ratings have improved massively since 2017, when Moody’s downgraded the state to A1. In the period following the Great Recession, Connecticut experienced what lawmakers described as a “permanent fiscal crisis.” 

The state struggled to budget through volatile revenues, and cycled through rapid tax hikes, budget cuts, and mid-year recissions. To solve a budget impasse, lawmakers implemented a set of policies known as the fiscal guardrails, which cap spending, guarantee a surplus and automatically allocate funds to reserves and unfunded pension liabilities. 

The guardrails have fueled a “comeback” for Connecticut and its finances. In 2021, the state was upgraded by all four rating agencies. 

Connecticut owes this upgrade to the fiscal guardrails, Moody’s analysts wrote. 

“The strict adherence to adopted financial policies have also [led] to consistent structural balance and continued improvement in budgetary reserves,” the report said. 

The impact of the pre-guardrails period is still a drag on the rating, according to the report. 

“While reduced, liabilities remain high, resulting in high fixed costs that limit budget flexibility compared to state sector peers,” Moody’s analysts wrote. 

The upgrade affects $28 billion of outstanding debt, according to Moody’s. 

The following Connecticut credits have also been upgraded to Aa2: the Connecticut Housing Finance Authority, the Connecticut Higher Education Supplemental Loan Authority, the Connecticut Health and Educational Facilities Authority, the City of Hartford’s special obligation refunding bonds, and special tax obligation transportation infrastructure bonds. The Connecticut Health and Educational Facilities Authority’s state-supported child care revenue bonds have been upgraded to Aa3 from A1.