Bud­get Is Signed In Conn.

The Bond Buyer - - Front Page - By Paul Bur­ton

While Gov. Dan­nel Mal­loy signed Con­necti­cut’s $41 bil­lion bi­en­nial bud­get -- end­ing a five­month im­passe that harmed the state’s rep­u­ta­tion in the cap­i­tal mar­kets -- work still re­mains at the capi­tol.

Mal­loy on Tues­day used his line-item pow­ers to veto a con­tro­ver­sial hos­pi­tal tax that law­mak­ers ap­proved as part of the fis­cal 201819 spend­ing plan. The gov­er­nor in do­ing so cited “its un­sound le­gal ba­sis” in fed­eral law.

The spend­ing bill calls for the hos­pi­tal provider tax to in­crease to 8% from 6%, while the hos­pi­tals un­der a com­plex ar­range­ment would re­ceive mil­lions of dol­lars more in fed­eral Med­i­caid fund­ing.

Mal­loy urged mak­ers to pass lan­guage he con­sid­ered work­able. Oth­er­wise, the gov­er­nor agreed on the spend­ing plan af­ter 123 days of grid­lock.

“It is time to sign this bi­par­ti­san bill into law and con­tinue the steady and sig­nif­i­cant progress our state has made over the past sev­eral

years,” Mal­loy said.

Demo­crat Mal­loy had ve­toed a Repub­li­can-crafted bud­get that passed Sept. 16 af­ter a hand­ful of Democrats broke ranks, un­happy with im­ple­menter lan­guage in the bud­get bill. Cau­cuses of both par­ties froze Mal­loy out of ne­go­ti­a­tions there­after.

The Sen­ate is split 18-18 be­tween Democrats and Repub­li­cans while Democrats hold a slim 79-72 ad­van­tage in the House of Rep­re­sen­ta­tives.

The bud­get, while pro­vid­ing an ad­di­tional $40 mil­lion in aid to strug­gling cap­i­tal city Hart­ford, cre­ates a Mu­nic­i­pal Ac­count­abil­ity Re­view Board that Mal­loy said would “play a sig­nif­i­cant role” in re­viv­ing Hart­ford from the brink of bank­ruptcy, while ben­e­fit­ing other strug­gling mu­nic­i­pal­i­ties such as West Haven.

Ac­cord­ing to Hart­ford Mayor Luke Bronin, ne­go­ti­a­tions for con­ces­sions from bond­hold­ers and la­bor groups are still nec­es­sary.

“The bud­get cre­ates tools that make it pos­si­ble to put the city on a path to sus­tain­abil­ity out­side of Chap­ter 9, so long as all of our stake­hold­ers are pre­pared to be a real part of the so­lu­tion,” Bronin said late Tues­day.

“With the new Con­necti­cut bud­get signed into law, the city of Hart­ford now ap­pears to have suf­fi­cient fund­ing to re­move the im­me­di­ate threat of bank­ruptcy or an im­mi­nent de­fault,” Nick Lehman, the lead Moody’s In­vestors Ser­vice an­a­lyst for Hart­ford, said in a state­ment. “How­ever, Hart­ford con­tin­ues to have very high credit risk with sig­nif­i­cant long-term struc­tural is­sues that need to be ad­dressed. The state aid pro­vides the city time to pur­sue a fi­nan­cial re­cov­ery plan, which will likely in­clude some type of debt re­struc­tur­ing, pos­si­bly with a loss to bond­hold­ers.”

Bond in­sur­ers Build Amer­ica Mu­tual and As­sured Guar­anty Mu­nic­i­pal Corp. wrap a com­bined 80% of the city’s bonds.

“BAM looks for­ward to par­tic­i­pat­ing along­side a coali­tion of stake­hold­ers as the mayor and the City Coun­cil take full ad­van­tage of the debt-man­age­ment tools in­cluded in the bud­get,” BAM chief credit of­fi­cer Suzanne Fin­negan said in a state­ment.

“BAM’s guar­anty may be a part of the so­lu­tion by al­low­ing Hart­ford to ex­pand the in­vestor base for its bonds and re­duce the city’s fu­ture in­ter­est pay­ments, as well as ac­cel­er­at­ing the bond-un­der­writ­ing process – rec­og­niz­ing that act­ing with­out de­lay max­i­mizes the po­ten­tial for sub­stan­tial bud­getary re­lief in the cur­rent fis­cal year,” she said.

The bud­get also makes the full ac­tu­ar­i­ally re­quired con­tri­bu­tion pay­ments to the state em­ployee and teach­ers’ pen­sion sys­tems and re­stores much of the higher ed­u­ca­tion fund­ing cuts to the Univer­sity of Con­necti­cut and the Con­necti­cut state col­leges and uni­ver­si­ties sys­tem.

In ad­di­tion, the fi­nal plan elim­i­nates sweeps to en­ergy funds, which re­quire the state to take ratepayer funds that were col­lected in or­der to lower en­ergy costs over­all through in­vest­ments in ef­fi­ciency and clean en­ergy.

An ear­lier Repub­li­can plan had fa­vored the sweeps.

Bond rat­ing agen­cies have low­ered the boom on Con­necti­cut over the past year. Most re­cently, S&P Global Rat­ings on Oct. 13 low­ered its out­look on the state’s gener- al obli­ga­tion bonds to neg­a­tive from sta­ble while af­firm­ing its A-plus rat­ing.

Fitch Rat­ings also rates Con­necti­cut GOs A-plus. Moody’s and Kroll Bond Rat­ing Agency rate them A1 and AA-mi­nus, re­spec­tively.

Af­ter last week’s veto-proof bud­get ap­proval by the leg­is­la­ture, S&P said the new plan would pro­vide needed cer­tainty to lo­cal gov­ern­ments.

“How­ever, weak credit con­di­tions across lo­cal gov­ern­ments due to re­duced amounts of state aid and a stag­nant statewide econ­omy could per­sist for some time,” it said.

S&P ex­pects to fully re­view the new bud­get af­ter the state is­sues an an­tic­i­pated new-money GO bond to fund de­layed projects.

“Our re­cent out­look re­vi­sion,” said S&P, “re­flects our view of the state’s long-term fi­nan­cial flex­i­bil­ity and ris­ing fixed costs, con­cerns that ex­tend be­yond the cur­rent bi­en­nium, and which will be eval­u­ated in any com­ing re­view.” ◽

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