Kroll Bond Rating Agency issued a pair of revenue collection reports analyzing the quality of general obligation (GO) bonds issued by New York and Connecticut. The result was muted praise for one state’s issues and concerns for the other.
First, the muted praise: New York received an AA+ rating and a “stable” outlook from the agency for its GO bonds. Kroll cited the state for “strong financial management policies, including development of multi-year financial and capital planning, regular monitoring of financial performance against plan and independent oversight by the Office of the State Comptroller.” The agency also commended New York for displaying “disciplined budgeting practices and progress towards structural balance.”
However, Kroll also observed that New York “continues to face budgetary pressure, with budget gaps forecast in the general fund, prior to savings from adherence to the 2% spending benchmark.” The rating agency also worried that the state’s major revenues were “economically sensitive and correlated to the income of wealthy residents and performance of the financial sector, which makes revenues difficult to forecast and increases potential budget volatility in periods of economic weakness.”
Across the border, Kroll gave Connecticut an AA- rating and a “negative” outlook. While acknowledging Connecticut possessed the highest per capita income in the nation and offered “strong financial management framework for tracking revenues and monitoring budget performance,” the rating agency also pointed out “increasing budgetary burdens for debt service, pension contributions, and Medicaid” coupled with the absence of vibrant employment level growth and a debt burden and pension liability level that were higher than other states.
Kroll also stated that Connecticut was burdened with “continued pressure on personal income tax collections resulting from difficulty in projecting final and estimated tax collections, further shifts in the state’s employment base or decline in economic activity.”