Fitch Rates Connecticut's GO BANs 'AA/F1+'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings has assigned an 'AA/F1+' rating to State of Connecticut general
obligation (GO) bond anticipation notes (BANs), consisting of:

--$350 million GO BANs, 2009 series A 'F1+';

--$350 million GO BANs, 2009 series B 'AA'.

The bonds are expected to sell via negotiation on or about April 23. The 2009
series A BANs mature April 28, 2010, and the 2009 series B BANs mature June 1,
2011; neither series is subject to early redemption. Fitch also affirms the 'AA'
rating on approximately $12.8 billion in outstanding GO bonds. The Rating
Outlook is Stable.

The state's 'AA' GO rating is based primarily on its fundamental wealth and
economic resources. While debt levels are high, the state ranks first among the
states in per capita personal income, at 142% of the U.S. level in 2008. The
state experiences revenue volatility tied to economic performance, but at the
moment has a large budget reserve fund (BRF), at 8.1% of general fund
appropriations. Rapidly weakening revenues are opening large budgetary gaps this
year and aggravating a longer term structural imbalance; solutions identified to
date rely primarily on one-time resources, including the BRF and federal
stimulus. Further economic and revenue weakening could pressure the state's
credit. The BANs are being issued to address cash flow uncertainty given
persistent revenue underperformance.

The state's debt burden is high, with net tax-supported debt as of Feb. 1 at
$16.7 billion, including recent issuances and the BANs, or 8.9% of 2008 personal
income. Three-quarters of net tax-supported debt is GO; excluding $2.3 billion
in GO pension bonds issued for the teachers' retirement fund (TRF), the debt
burden falls to 7.8% of 2008 personal income. Funding levels for the state's
major pension systems remain a concern. As of June 30, 2008, the state
employees' retirement system (SERS) was funded at 52%, and the TRF was funded at
70%, the latter following deposit of bond proceeds last year. The state now
anticipates reducing contributions to SERS by $65 million annually in fiscal
year (FY) 2009 and 2010.

Revenue volatility and persistent spending pressures periodically lead to
financial stress, although the state currently has a very well-funded BRF
balance of $1.4 billion, or 8.1% of general fund appropriations in fiscal year
(FY) 2008. Revenues are slowing rapidly with the national recession, and FY 2009
projections have been lowered repeatedly, particularly for personal income tax.
The state's budget office forecasted in March that FY 2009 net tax revenues
would be $11.2 billion, or 10.6% below FY 2008 figures; personal income tax
receipts would be 9% below the prior year. After balancing actions to date by
the governor and legislature, the FY 2009 gap has been reduced to $667 million;
the remainder of the gap would be closed by use of budget stabilization funds,
transfers, and other labor and expense savings. The state's comptroller projects
a higher gap of more than $1 billion, due to higher forecast declines in
personal income and sales taxes.

Revenue weakness is expected to continue into the FY 2010-2011 biennium. The
governor's budget, released in early February, forecast net tax collections
falling 0.9% in FY 2010, followed by a 4.9% gain in FY 2011 as the economy
returns to growth. This would leave baseline gaps of $2.9 billion in FY 2010 and
$3.1 billion in FY 2011, or about 19% of each year's forecast revenue. Forecast
changes since February have widened these gaps by $721 million in FY 2010 and
$672 million in FY 2011. The governor's proposal relied on spending cuts and use
of one-time resources; the proposal would deplete the remaining BRF, use federal
stimulus and a $350 million energy fund securitization to close roughly half of
forecast gaps. Spending cuts include $1.1 billion in FY 2010 and $1.3 billion in
FY 2011. The state has reached a tentative labor agreement, originally expected
to generate $637 million in savings during the biennium, including the SERS
contribution deferral. Longer-term forecasts show large structural imbalances
persisting beyond the next biennium.

The state's diverse and wealthy economy includes important manufacturing,
finance, insurance and tourism sectors. After peaking in mid-2008, employment
levels are declining, with March 2009 down 3.5% in the state compared to March
2008; nationwide, employment levels were down 3.6%. Losses are particularly
severe in construction, down 24.2%, and professional and business services, down
7.9%. Unemployment has risen to 7.5%, from 5.3% a year ago. The state's large
financial activities sector, with insurance concentration in Hartford and
banking in Fairfield County, was down 3.1% in March; its performance going
forward is a vulnerability given recent financial market turmoil.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Douglas Offerman, +1-212-908-0889
Richard Raphael, +1-212-908-0506
Media Relations
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com

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