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SENATE BILL 421 PROTECTS BOND, CREDIT RATINGS

SENATE BILL 421 PROTECTS BOND, CREDIT RATINGS

CCM has called on the General Assembly leaders – with less than a month to go in the 2018 session -- to ensure passage of critically needed state legislation to protect municipal rainy-day funds (known as municipal fund balances) in all 169 towns and cities from being depleted as a result of arbitrated labor contract settlements with municipal union groups.

To support their legislative push, CCM has launched paid ads on both the CT News Junkie and the CT Capitol Report to focus greater attention on this needed legislation.

“Connecticut faces an unprecedented credit rating crisis, with Moody’s questioning the ratings of 26 additional cities and towns, adding to 25 already with negative outlooks,” said Joe DeLong, CCM Executive Director. “Senate Bill 421 aims to protect the municipalities of Connecticut from passing the effects of these ratings down to the citizens of the state.”

The Planning and Development Committee passed a proposal that would revise municipal budget reserve language that was passed as part of the state budget for the biennium ending June 30, 2019. This bill would prohibit an arbitration panel from considering a municipal fund balance of 15% or less when calculating the financial capability of a municipality.

A full third of Connecticut’s municipalities have seen their bond ratings downgraded or given negative outlooks as a result of the State’s ongoing budget challenges.

Of the many reasons a municipality should maintain a fund balance, the one most often cited is that it can preserve a municipality’s bond rating. The repercussions of negative credit ratings are far reaching, leading to higher borrowing costs for the affected municipalities, or even stalling necessary infrastructure projects.

This bill would help prevent a municipality from going below the threshold credit rating agencies recommend like Moody’s consider when making their decisions. Otherwise, the alternative would be to raise taxes, which will make the property tax burden even more oppressive for hard-pressed Connecticut residents and businesses.

“Moody’s specifically states that ‘…externally, reserves tend to be viewed favorably by investors, rating agencies and local banks with which a municipality does business, thus benefiting ratings and decreasing the potential need for external liquidity sources.’” The Government Finance Officers Association (GFOA) states that “of particular importance to credit rating agencies are the size of ‘fund balance’”.

Furthermore, this bill protects municipal fund balances so municipalities are better able to react to unanticipated expenditures such as state municipal aid cuts, natural disasters, spikes in energy costs, employee overtime, variations in cash flow, and capital expenditures.

SB 421 will protect municipalities bond and credit rating and their property taxpayers. CCM appreciates the bipartisan support the bill has garnered and all the members of the Planning and Development Committee who supported this very important bill.