Concerned about the impact of municipal aid cuts under Gov. Dannel P. Malloy’s executive order, Moody’s Investors Service said this week it could lower its bond credit ratings for 51 towns.
Moody’s released a list of 26 towns that it has placed “under review” for a possible credit downgrade, while a second group of 25 towns were given negative outlooks.
Wallingford, Cheshire, and Berlin were among the towns Moody’s gave negative outlooks, a distinction that doesn’t lower bond ratings but serves as a warning to investors that the rating agency has serious concerns.
“We don’t like to see something like that, but it’s not unexpected,” Wallingford Mayor William W. Dickinson Jr. said Tuesday.
Municipal officials have been warning for months that the lack of a budget, and the cuts implemented under Malloy’s executive order, could threaten their bond ratings. Wednesday marks the 110th day of the fiscal year without a budget The executive order includes cuts of varying degrees to all 169 towns, including the elimination of Education Cost Sharing grants to 85 municipalities.
Connecticut Conference of Municipalities Executive Director Joe DeLong said Moody’s announcement “only serves to reinforce that while state legislative leaders claim to have been meeting in good faith to resolve the state budget impasse, the time for action on a state budget agreement is now.”
No area towns are among those Moody’s placed under review, a list that includes cities like Bridgeport and New Haven, suburbs like South Windsor and Mansfield, and small towns like Scotland and Sprague.
Moody’s said it placed the 26 municipalities, as well as three regional school districts, under review because they face “cuts in state funding equal to 100 percent or more of available fund balance or cash.”
The other 25 towns — 14 were assigned negative outlooks, while another 11 had their existing outlooks “reiterated” — were identified because the cuts they face in the executive order represent between 75 percent and 100 percent of available fund balance or cash.
Cheshire Town Manager Michael Milone said he was “livid” with Moody’s, though, because the agency just made the announcement based on the assumption that towns would rely solely on fund balances and any other available cash. He said someone with the agency should have asked each town about its contingency plans, including possible cuts or other tactics to balance their budget.
“You find those out first, before you decide if someone’s credit is at risk,” he said.
Berlin Interim Town Manager John Healy couldn’t be reached for comment Monday.
The negative outlook doesn’t necessarily mean Moody’s will take further action.
“It could mean any number of things,” Milone said. Moody’s and other credit rating agencies take a number of factors into consideration when issuing ratings, including the size of a town’s fund balance and budget, the level of current debt, and how those three compare to each other.
The agency said in a statement that it could improve ratings or outlooks if it sees “sustainably balanced financial operations in an evolving state support environment,” improved fund balances, and growth in tax bases.
It could, conversely, lower ratings if it doesn’t see sustainable balance with the state budget, a decline in budget reserves, a contraction of tax bases, or “material growth in local pension liabilities or annual pension contributions.”
Malloy on Monday presented his fourth budget proposal, saying he hopes it will move along discussions toward a final agreement. He added Tuesday that he “warned of” Moody’s announcement and repeated his call for the legislature to move quickly.
Sen. Len Suzio, R-Meriden, meanwhile, is continuing to push for an override to Malloy’s veto of the Republican-crafted budget, which the legislature adopted Sept. 15. He has reached out to local officials in his district, urging them to pressure the legislature to override the veto and put a budget into place.
“I regret that we have reached this point,” Suzio wrote in a letter to local officials last week. “But the failure to recognize a developing financial crisis for your municipality and to plan accordingly will only result in more potential damage. The time to act is now.”
Rep. Catherine Abercrombie, D-Meriden, said she continues to support the veto because of concerns that proposed labor changes would face a costly legal challenge, among other concerns.
“What I would say to any official who calls me is, ‘have you read it,’” she said.
Dickinson and Milone said they simply want a budget in place, whether that means an override of Malloy’s veto or a new agreement that can take effect.
“I think we need a budget,” Dickinson said. “Whether it’s a Democratic budget or a Republican budget is not something I’m focusing on.”
Middlefield’s town council, meanwhile, has approved a resolution calling on the legislature to override the veto.