Fitch Downgrades Connecticut's Bond Rating

Fitch Ratings downgraded Connecticut's credit rating from "AA-" to "A+" Friday, which could increase borrowing costs for the state government.

"The downgrade of Connecticut's IDR and related ratings is based on reduced expectations for economic and revenue performance over the medium term and the deterioration in Fitch's assessment of the state's through-the-cycle fiscal flexibility, which has suffered from the need to address chronic economic and fiscal challenges during a prolonged period of national economic expansion," the agency said in a statement.

Fitch noted that the state is committed to finding structural solutions to its fiscal woes, but it faces some challenging issues. Gov. Dannel Malloy put out a deficit mitigation plan that would drain the state's rainy day fund.

Senate Republican President Pro Tempore Len Fasano said the news was devastating, but not unexpected.

"Lawmakers need to recognize that their policies have consequences and have created an environment that is now in desperate need of significant change," he said. "What is clear is that any biennial state budget for Connecticut cannot resemble the fiscal policies of years past."

He called for dramatically different policies to set the state on the right fiscal course.

Connecticut's significant debt and unfunded pension liabilities are among the highest in the country.

"The last downturn in Connecticut was severe and the recovery has been very slow compared to previous economic cycles," Fitch said in a statement. "Over the 2012 - 2016 period, employment in the state rose at roughly half of the pace enjoyed by the nation, and current employment remains below the prerecession peak."

The state's financial sector took a large hit during the recession and hasn't fully recovered. Manufacturing employment also remains flat.

Connecticut is the wealthiest state in the nation based on per capita personal income.

The following bond ratings were downgraded one level:

--Approximately $16.6 billion in outstanding general obligation (GO) bonds to 'A+' from 'AA-';
--Approximately $5.3 billion in outstanding special tax obligation bonds issued for transportation purposes, both senior and subordinate lien, to 'A+' from 'AA-';
--University of Connecticut state debt service commitment bonds to 'A' from 'A+';
--Connecticut Higher Education Supplemental Loan Authority state supported revenue bonds payable from special capital reserve funds to 'A' from 'A+';
--Capital City Economic Development Authority parking and energy fee revenue bonds, series 2004B and 2008D to 'A' from 'A+';
--Connecticut Development Authority and Connecticut Innovations general fund obligation bonds, series 2004A, 2006A and 2014A to 'A' from 'A+';
--Connecticut Development Authority general obligation bonds, series 2004B to 'A-' from 'A';
--Connecticut Health and Educational Facilities Authority (CHEFA) revenue bonds (child care facilities program) series G to 'A-' from 'A'.

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