Wall Street credit rating agency Moody”™s Investment Service estimates that Connecticut”™s weak economy is unlikely to improve over the next several years, maintaining that the Nutmeg State “has entered a ”˜new normal”™ with employment still below pre-financial crisis levels and income growth lagging the nation”™s.”
The Moody”™s report cites rising retirement benefit costs as a major factor contributing to the “new normal,” and cautions that while proposals to shift costs from the state to municipalities could help the state”™s credit rating, that approach could end up hurting those municipalities.
“Connecticut’s combined expenditures for employee pension contributions, retiree health insurance and debt service command roughly 30 percent of the state’s $18.9 billion non-federal governmental revenues,” the report stated. “The state’s fixed costs ranked highest of the 50 states in our most recent state pension medians report. In fiscal year 2016 these costs reached $5.6 billion and are slated to grow to more than $7 billion by fiscal 2019, commanding nearly 35 percent of the state’s general fund budget by fiscal 2019.
“High fixed costs reduce budgetary flexibility and weigh heavily on the state’s credit profile,” the report added.
Moody”™s said it would be a “credit positive” for Connecticut to stabilize its finances with spending cuts, but added that weakening the resources of municipal governments would have “varying degrees of credit impact.”
