Moody’s Downgrades – Barnes Responds

Posted on January 20, 2012. Filed under: Uncategorized |

Today, Moody’s downgraded Connecticut’s general obligation debt to Aa3, citing “high fixed costs, low pension funding, and depleted reserves.”

(In a bit of good news, though, the rating outlook was changed from negative to stable!)

OPM Secretary Ben Barnes released the following statement in reaction to this news:

“Moody’s is wrong in its analysis of the state’s finances, and wrong to change Connecticut’s credit rating.  Connecticut has done all the right things to shore up our finances, and Moody’s has responded with a downgrade intended to satisfy their internal corporate need to deflect attention from their historic lack of credibility.

Connecticut has always paid its debt, and remains an attractive issuer of public debt.  Investors appreciate Connecticut’s strong income levels, conservative debt management practices, and fiscally conservative leadership.

Moody’s lowered the rating for Connecticut below where it has been since April 2010 even though Connecticut’s fiscal health has significantly improved during that period.  Recall that in 2010 Connecticut faced looming multi-billion deficits into the future, had pension funding ratios in the low 40s, had spent the entire rainy day fund, and was in the middle of a series of budgetary gimmicks which Governor Malloy has spent his first year in office undoing.

Today, we have a structurally balanced budget, have converted to GAAP, have fully funded our current pension obligations and seen their funding ratio rise, have negotiated significant pension benefit concessions from organized labor, have negotiated significant employee contributions to retiree health benefits, and have begun to add jobs to the state economy.

Moody’s Investor Service decision today to lower their rating of Connecticut’s General Obligation debt from Aa2 (negative) to Aa3 (stable) is unfortunate.  It reflects their continued reaction to their central involvement in the financial scandals that led to the deepest recession since the Great Depression.   Coming on the eve of our budget release, without an imminent bond sale, suggests that the move is motivated by factors other than Connecticut’s creditworthiness.

Moody’s, which receives approximately $170,000 per year in fees from the State for their bond rating services, is one of three agencies that rate Connecticut debt.  The others, Standard & Poor’s and Fitch, continue to rate Connecticut debt as AA (equivalent to Aa2 from Moody’s.)”

 

What do you think? Was Moody’s decision justified, particularly in light of Barnes’ comment that the rating from Standard & Poor’s and Fitch has not changed?

 

 

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