Connecticut's Borrowing Practices: More Smoke and Mirrors

If you've followed the Connecticut's borrowing trend, it will come as no surprise that Connecticut's bond rating has been downgraded.  In the latest review, Moody’s is keeping the state at the lower bond rating of AA3 from its reduction last January.  Fitch has now given Connecticut bonds a negative outlook. I believe that the rating agencies have treated Connecticut generously over the past four years, and the latest adopted budget only exacerbates the issue.  While Malloy touted a no-tax increase budget, he used borrowing to address our $2 billion deficit as opposed to spending reductions and efficiencies.  His budget delayed debt payments of over $400 million for two years and borrowed $750 million for cash flow needs.  If you can't make your mortgage payment today, doubling the payments tomorrow doesn't solve the problem.  This budget delays our problems for another day, and the rating agencies know that. Under this administration, we've seen unfunded capital projects go from $2.8 billion to $5.1 billion; essentially, Connecticut is spending money on projects at a quicker pace than we can fund it.  Not only is this spending a bad practice, but it puts greater pressure on our check book.  Rather than slow spending down to improve our cash flow, we borrowed money to replenish it. Fitch took issue with how the state decided to borrow $750 million in order to implement Generally Accepted Accounting Principles. Connecticut has had a "GAAP" deficit for years, and the accumulated deficit stands at over $1.3 billion. This deficit represents the amount of money that is spent outside of the budget; in effect, Connecticut fails to account for all of its expenditures in the budget annually.  These leftover expenditures accumulate each year.  It is debt that is owed to ourselves.  Rather than recognizing this accumulated debt in our budget so that the state can begin to pay it down, Governor Malloy proposed borrowing $750 billion to pay off part of this "debt"; thus, taking a soft debt owed to ourselves and turning it into a hard debt with interest accumulating.  If that wasn't bad enough, the proposal delays repayment on this debt into the next budget biennium.  Fitch rightfully took issue with this practice. So while taxpayers may feel a limited impact to tax increases in this budget cycle, these borrowing practices are setting Connecticut up for another ugly budget cycle in two years.