Credit rating agency Moody's Investors Service has upgraded Connecticut's bond rating, lowering the cost of debt service on more than $23 billion in outstanding bonds.

When was the last time a Wall Street agency updated the state's credit rating? February, 2001—reflecting two decades of fiscal instability and uncertainty.

The upgrade shifts Connecticut's bond rating from A1 to Aa3—to Moody's fourth-highest tier—with obligations now "judged to be of high quality and are subject to very low credit risk."

Moody's said the upgrade "reflects the state's continued commitment to numerous governance improvements that have already borne fruit in the accumulation of significant budgetary reserves and good financial performance through the pandemic."

Budget Reserves 'Critical'

Connecticut's budget reserves have surged in the past 12 months, with a current balance of more than $3 billion.

Moody's noted that "the reserves are critical in mitigating budgetary inflexibility created by the state's heavy debt and retiree benefit liabilities, which are among the highest of the states."

"The reserves are critical in mitigating budgetary inflexibility created by the state's heavy debt and retiree benefit liabilities."

Moody's Investors Service

"The policies creating the reserves also reduce the impacts of revenue volatility, promote more robust funding of the state's pension systems and lead to better budget management," the agency said.

"The Aa3 rating also reflects Connecticut's high income and wealth levels offset by a lagging economy and recent consecutive years of population loss, which make liabilities more burdensome."

Bipartisan Reforms

CBIA president and CEO Chris DiPentima welcomed the rating upgrade, saying the turning point for the state's Rainy Day Fund came in 2017, when the legislature adopted bipartisan budget reforms.

"Our budget reserves were thin to non-existent over the previous decade-plus," he said. "In 2017 the Rainy Day Fund had a balance of just $213 million.

Connecticut still has structural issues that must be resolved, but lawmakers have shown what they can do when they work together."

CBIA's Chris DiPentima

"That 2017 bipartisan budget featured some important reforms, including the addition of a volatility cap, that set much of the foundation for where we are today.

"Connecticut still has structural issues that must be resolved to ensure long-term fiscal stability and growth, but lawmakers have shown what they can do when they work together to address our major challenges and realize the benefits that fiscally responsible policies have for the state and its residents.”

'Challenges Ahead'

Gov. Ned Lamont called the credit rating upgrade "another strong indication of Connecticut’s comeback."

“We are a national leader in combating the COVID-19 pandemic, and due to our wise investments, robust savings, better than anticipated revenues, and generous federal support, we are emerging as a financial leader among the states," he said in a statement.

“Our state has many challenges ahead and there is much more work to be done, but it is essential we continue down this path and foster additional growth to best position us for the long term.

"This report should build confidence in our business community and our residents, as it provides outside validation that Connecticut continues to make prudent financial decisions that set the state up for growth now and into the future, which are critical as we emerge from the COVID-19 pandemic.”