Connecticut has gained favor with Wall Street throughout Gov. Ned Lamont’s eight-year tenure, an arrangement that helps save taxpayers millions annually.
But while Lamont frequently touts his report card from credit rating agencies, his critics say it paints an incomplete picture.
Liberals note that Moody’s, S&P Global, Fitch and Kroll ratings services pay close attention to government spending, debt and the overall economy. In other words, they care whether state government is prepared to pay its bills and limit taxes — but not necessarily how well it teaches students to read, maintains aging bridges, inspects crowded nursing homes or protects abused children.
And conservatives say Lamont’s track record loses its luster upon closer inspection. Connecticut, which still carries hefty pension debt, doesn’t rank among the top 10 to 15 states in most bond ratings lists. More importantly, they say, Lamont’s recent moves around state spending limits could change Wall Street’s opinion very soon.
“Wall Street is clearly recognizing the hard work Connecticut has done to put our fiscal house in order,” Lamont said last week when S&P Global changed its outlook from “stable” to “positive” on the broadest category of state bonds.
“Connecticut is rapidly paying down its long-term debt, reducing fixed costs for taxpayers and strengthening the retirement systems upon which our public employees depend,” the governor added. “When businesses decide where to relocate, invest or expand, they are seeing a state whose fiscal outlook has dramatically improved and whose long-term future is stronger than it has been in decades.”
On 15 separate occasions since Lamont took office in 2019, at least one of the four major Wall Street rating agencies boosted their score on the state’s creditworthiness.
On 13 others, an agency improved its “outlook” upon Connecticut’s finances — often a precursor to formal upgrade.
The state borrows billions of dollars annually by selling bonds to investors to finance municipal school construction, highway, bridge and rail repairs, construction work at public universities and other capital projects. Annual payments on that debt approach $3.6 billion, or 12% of the state budget. Any reduction in interest rates usually translates into millions of dollars in yearly savings.
“What the ratings really focus on is where the state is going forward,” said state Treasurer Erick Russell, who called the upgrades “a testament to the progress that’s been made” following decades of fiscal irresponsibility.
Russell, a New Haven Democrat running for a second term this fall, was referring to a 2015 report from the Center for Retirement Research at Boston College. It showed governors and legislatures for seven decades prior to 2011 failed to properly save for pensions pledged to state employees and municipal teachers.
This deprived the treasurers of huge assets that otherwise could have been invested to generate billions of dollars for the pensions — a gap present-day taxpayers must fill.
Connecticut still carries more than $30 billion in unfunded pension obligations, one of the highest burdens per capita of any state. But it would be much higher were it not for aggressive state budget caps that have funneled $11 billion in budget surpluses into the pensions since 2020.
But many of Lamont’s fellow Democrats say the fiscally moderate governor has over-corrected, saving too aggressively, to the detriment of health care, education, social services and other core programs.
“When we have tens of thousands of people across the state losing [federal nutrition] benefits,” said Constanza Segovia, organizing director for Connecticut For All, “when we have people struggling to stay housed … we are not performing well.”
Too many public schools “are crumbling,” she added. “These are the things that matter to Connecticut residents, not what Moody’s and Fitch thinks is good.”
Credit rating agencies “have not been that granular” at assessing many core services like education and human services, Russell said.
But Wall Street does try to assess whether Connecticut’s economy is poised to grow and prosper, the treasurer said, adding he believes Wall Street supports big new state investments Lamont approved in affordable childcare and municipal aid, even though they involved shifting funds outside of the formal budget and authorizing a legal exemption to spending cap rules.
Credit rating agencies typically don’t weigh in on campaigns and political debates, but fiscal conservatives say Wall Street is voicing concerns to those who listen carefully.
An analyst for the Yankee Institute for Public Policy, a fiscal research group, noted S&P Global sent a mixed message when it improved its “outlook” for Connecticut on Sept. 24.
“The carrot comes with strings,” analyst Meghan Portfolio wrote. But whether that translates into formal ratings upgrade, she said while quoting the agency report, depends on whether Connecticut “maintains its established fiscal guardrails in future budget cycles, further reduces unfunded pension liabilities without materially increasing debt, and demonstrates budget stability and healthy reserves.”
Carol Platt Liebau, president of the Yankee Institute, and GOP gubernatorial nominee Ryan Fazio said Wall Street is watching closely for fiscal gimmickry.
“Connecticut’s credit gains depend on preserving the guardrails,” Liebau said. “Weaken them, and today’s celebration could become tomorrow’s downgrade.”
Fazio called the latest rating agency report “a cautionary tale. If they’re not closely watching now, they will be.”
Rob Blanchard, spokesman for Lamont’s reelection campaign, countered Wednesday that Fazio recently proposed a questionable income tax-cutting plan that could weaken the state’s strong financial reputation. Fazio’s says his proposal would send $2,000-plus annually back to middle class families by 2031. But it is based partly on outdated spending and revenue trends, leaving it unprepared to maintain hundreds of millions of dollars in new investments in municipal aid, affordable childcare and social services.
“S&P is rewarding Connecticut for fiscal discipline, despite Fazio wanting to undo it,” Blanchard added.
Connecticut likely must boost spending in the coming years to offset huge cuts to federal human service programs, Russell said. But he added no one wants to unravel the sound budget practices that have allowed the state to whittle down its debt significantly over the past decade.
“There’s broad buy-in around the legislature and the governor,” he said, “to continue that fiscal responsibility.”