NEW YORK (Reuters) - Fitch Ratings downgraded the state of Connecticut on Friday one notch to A-plus because of a dimming economic outlook and a lack of fiscal flexibility, making it the third-lowest-rated U.S. state on Fitch’s roster.
The wealthiest U.S. state on a per capita personal income basis, Connecticut’s economic growth has been “unusually slow and uncertain” during the current national economic expansion, and the state is expecting weak job growth in coming years, Fitch said.
Those chronic economic challenges and Connecticut’s high budgetary liabilities have constrained the state’s ability to maneuver financially, Fitch analysts said of reasons for the downgrade.
Revenue collections also came in far below projections through the month of April, failing to keep pace with rising expenses and adding to the state’s deficit.
On Wednesday, Governor Dannel Malloy, a Democrat, said the state would drain its rainy day reserve fund and make one-time transfers from other funds to help close a $390 million revenue shortfall this year.
Malloy and the legislature are currently hashing out the state’s next two-year budget, due by the end of the fiscal year on June 30.
Chris McClure, a spokesman for Malloy’s budget office, said in an emailed statement that the downgrade was “disappointing but unsurprising.”
“If we wish to avoid further humiliation at the hands of the rating agencies we should all hope the legislature sees reason soon,” McClure said.
The state must mitigate the current deficit, balance its biennial budget with recurring measures and find structural solutions to longer-term problems, as the governor has proposed, he said.
Senate President Pro Tempore Len Fasano, a Republican, said the downgrade was “devastating.”
“In a bipartisan effort, we must chart a new and different course for Connecticut which is dramatically different from prior years,” he said in a statement. “We need to get serious about dramatic structural changes to government.”
The downgrade affects about $16.6 billion of outstanding general obligation bonds and $5.3 billion of special tax obligation bonds for transportation projects rated by Fitch.
Related Connecticut bonds - including debt for higher education, health facilities and economic development projects - were also downgraded.
Reporting by Hilary Russ; Editing by Daniel Bases and Leslie Adler