Federation of Connecticut Taxpayer Organizations

HARTFORD � State Treasurer Denise L. Nappier warned Gov. M. Jodi Rell and state legislative leaders Friday that their budget standoff is hurting Connecticut�s standing on Wall Street.

And if state government�s bond rating is downgraded, Nappier said, Connecticut could face added interest costs as high as $80 million this fiscal year.

One of the major Wall Street investment rating firms, Fitch, cited the state of Illinois� failure to adopt a budget on time as one reason for downgrading its rating, Nappier wrote in a letter to officials.

And another rating agency, Moody�s, recently characterized New Jersey as having a �negative outlook� for other problems also similar to Connecticut�s current situation.

Those include a depleted budget reserve, large debt, and plans to use one-time revenue sources to support ongoing programs.

Technically, state government still has almost $1.4 billion in its emergency reserve, or Rainy Day Fund. But both Rell and state lawmakers have proposed using that reserve to help reduce the need for taxes in the next two-year state budget. Fiscal analysts say that based on current spending and taxation trends, state finances would run $8.56 billion in deficit over this fiscal year and next combined.

Further complicating matters, the state ended the last fiscal year on June 30 with a $940 million deficit that still hasn�t been closed. Both Rell and lawmakers have proposed borrowing funds to address that.

�The fiscal impact of a credit downgrade on Connecticut is quantifiable and it is sobering,� the treasurer wrote.

Nappier estimated that if Connecticut�s bond rating were downgraded, it could mean $80 million in added interest costs this fiscal year, and $335 million more over the next five.

Connecticut already has one of the highest levels of bonded debt per capita of any state in the nation. About 11 percent of last fiscal year�s $18.4 billion state budget was used to cover debt payments.

Only two states in the nation � Connecticut and Pennsylvania � remain without approved budgets in this fiscal year, which began July 1.

Rell, a Republican, and the Democrat-controlled legislature have been at odds since February over how to balance state finances for this fiscal year. The governor has proposed $690 million in new tax and fee revenue over two years while Democrats have proposed nearly $2 billion.