Connecticut Confirmed at Aa by Moody's.NEW YORK--(BUSINESS WIRE)--April 10, 1996--Moody's Investors Service has confirmed the Aa rating assigned to the State of Connecticut's general obligation bonds in connection with the planned sale next week of approximately $400 million General Obligation Bonds (1996 Series A). In assigning the rating, Moody's acknowledges the credit strength derived from the state's exceptional wealth and resources. But we continue to note significant factors which result in an unfavorable outlook for the state's credit position. These include weakened economic performance, failure to make progress in shrinking the state's large accumulated GAAP-basis deficit, reliance on one-time measures to achieve budgetary balance in the current biennium bi·en·ni·um n. pl. bi·en·ni·ums or bi·en·ni·a A two-year period. [Latin : bi-, two; see bi-1 + annus, year; see at- , and the inflexibility in·flex·i·ble adj. 1. Not easily bent; stiff or rigid. 2. Incapable of being changed; unalterable. 3. Unyielding in purpose, principle, or temper; immovable. imposed by a very heavy debt load. Now awaiting resolution in the Legislature are the Governor's "midterm mid·term n. 1. The middle of an academic term or a political term of office. 2. a. An examination given at the middle of a school or college term. b. midterms A series of such examinations. " budget adjustments for fiscal 1997, prompted in part by the state's straitened strait·en tr.v. strait·ened, strait·en·ing, strait·ens 1. a. To make narrow. b. To enclose in a limited area; confine. 2. circumstances. Still Wealthy, But Weakening Connecticut's exceptional wealth and resources have long been the source of the high grade security afforded its general obligation bonds. But the state was severely affected by the last recession, and economic restructuring in the defense and finance/insurance sectors has made Connecticut's economic recovery one of the weakest of the states, and will likely continue to do so for some time. This economic climate limits revenue growth and narrows the state's options as it seeks to meet service demands while maintaining budgetary balance. Personal Income Tax Stabilized Finances, But Deficit Remains The state altered its tax structure at the start of fiscal 1992, imposing a personal income tax and reducing the sales tax sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. rate. This helped to restore fiscal balance by reducing the budget's economic vulnerability and substantially increasing revenues. Efforts to take fuller advantage of federal Medicaid reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. have also enhanced revenues, but have left the state vulnerable to challenges by affected parties and to federal policy changes. Even with the revised tax arrangement, the state has failed to make progress in shrinking its accumulated GAAP-basis deficit. In fact, the deficit widened in fiscal 1995 from $466 million to $577 million (or to $496 million, if we adjust for $81 million placed in the Budget Reserve Fund) and is projected to grow again, albeit modestly, this year. Reliance on One-Time Measures Indicates Imbalance The General Fund budget as initially enacted for the 1996-97 biennium offered little promise of financial improvement. It provided a $200 million tax cut, postponed plans to amortize amortize To write off gradually and systematically a given amount of money within a specific number of time periods. For example, an accountant amortizes the cost of a long-term asset by deducting a portion of that cost against income in each period. the deficit and relied on one-time measures-- postponing final payment of the state's deficit notes, using proceeds of a planned lottery privatization privatization: see nationalization. privatization Transfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned , delaying scheduled business tax cuts, and bonding out a corporate tax refund--to achieve balance. The tax cut's effective date was deferred to the biennium's second year, to allow time for budget adjustments. Now coming to the fore in public discussion is the lottery issue. The enacted biennial biennial, plant requiring two years to complete its life cycle, as distinguished from an annual or a perennial. In the first year a biennial usually produces a rosette of leaves (e.g., the cabbage) and a fleshy root, which acts as a food reserve over the winter. budget assumed a one-time, $200 million revenue gain in fiscal 1997 derived from lottery privatization, with details left unspecified. Several proposals have been advanced to carry out the privatization and deliver the expected cash infusion, but none addresses a basic fiscal problem facing the state: the structural imbalance between revenues and expenditures, which is projected to widen. High Debt Load Connecticut's ratio of tax-supported debt to personal income is now among the highest of the states, as is its ratio of yearly debt service payments to revenues. Connecticut also has large contingent debt commitments, a large unfunded pension liability, and a large unfunded liability in the Second Injury Fund of the state's workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. system. These heavy fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). limit the state's financial flexibility. CONTACT: Steven Hochman Vice President 212/553-0338 |
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