Last week the State of Connecticut rating for General Obligation Bonds was downgraded from Aa2 to Aa3 and assigned a stable outlook by Moody’s. My first reaction was to write a quick reaction but then I sat back to see what the general media would do and what the reaction would be.
I am dismayed to write today there has been little reaction and the Governor has successfully gathered his political cronies over at the Capitol to sweep the news and consequences under the rug like yesterday’s dust. Like the dust under the rug the problems will not go away even if we ignore them they will erode and eat away the fiber of our economic recovery.
Just as you can expect the sun to rise in the east you can expect higher interest rates on future State Bond Obligations to rise. Just when we need every penny to be used wisely our pockets will be picked for higher interest payments. So why did it happen?
According to Moody’s, “The rating downgrade is based on Connecticut’s high combined fixed costs for debt service and post-employment benefits relative to the state’s budget; pension funded ratios that are among the lowest in the country and likely to remain well below average; and depleted reserves with slim prospects for near-term replenishment. Connecticut’s state employees retirement system (SERS) and teachers retirement system (TRS) had funded ratios of 44% and 61%.”
The immediate response by our political puppets was to call Moody’s wrong and then point out we have a balanced budget and GAAP accounting both of which were actually taken into account by Moody’s. It was a meaningless response from an empty suit exactly the kind of head in the sand thinking that has gotten us into the financial mess we find ourselves.
To be balanced and candid it should be pointed out that some pension and healthcare reforms were achieved in last year’s round of union negotiations. However, funded ratios are not likely to improve significantly until closer to the end of the remaining amortization periods which is 21 years for SERS and 25 years for TRS. We have not exactly turned the corner here on a road to fiscal sanity but we have published hope for the next generation.
Just how bad is the pension fund situation here in Connecticut? The fixed costs for debt, pension, and other post-employment benefits relative to budget are among the highest in the nation. That’s right our children will have to dig their way out of the hole left behind by the current generation of legislators.
The Governor and his political cronies may have a different view of this situation than many Connecticut thinking men and women. In fact here is what his Secretary of the Office of Policy and Management says about the situation, “Investors appreciate Connecticut’s strong income levels, conservative debt management practices, and fiscally conservative leadership.” That leads to one question, in light of the passage of medical marijuana legislation, what is that guy smoking?
Calling a State with one of the largest debts for pension funds and a history of excessive spending while leadership kicks the can of responsibility for payment to the next generation “conservative fiscal leadership” is either lunacy or a total lack of understanding as to the meaning of conservative. Moody’s didn’t miss the mark and it is time for our legislators to step up, face the reality that the root of our real problem is found in excessive spending not a lack of income.
Noah Webster never envisioned Dan Malloy and capitol Democrats when he wrote the definition of “conservative”. No they can be described many ways but “conservative is not one of them. The time has come for real conservative fiscal leadership not for phony and false political rhetoric.