Fresh Off Another Downgrade, Connecticut Has a Plan to Lower Borrowing Costs

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Fresh Off Another Downgrade, Connecticut Has a Plan to Lower Borrowing Costs

By Liz Farmer

Besieged by budget shortfalls, Connecticut’s credit rating was downgraded in recent days by Fitch Ratings and Moody’s Investors Service. The downgrades were the state’s fourth and fifth in the past year alone. But if State Treasurer Denise Nappier gets her way, that credit hit might not matter the next time Connecticut goes to sell bonds.

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Nappier wants the state to start offering investors revenue bonds that are paid back directly from the state’s income tax revenues. Called tax-secured revenue bonds, these new bonds would be offered in place of general obligation bonds, which are backed by the state’s general revenue collections. Nappier’s office believes the dedicated income stream would mean the bonds would fetch ratings as high as AAA, resulting in a better interest rate and lower debt service costs. The idea has received mixed reviews. While some observers call it a product that will offer comfort to bondholders wary of Connecticut’s troubles, others say it’s a “financial engineering gamble” designed to game the market. “To create something out of nothing — they’re not being more fiscally responsible by doing it this way,” says Municipal Market Analytics’ Lisa Washburn. Keep reading >>
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Finance writer Liz Farmer’s roundup of money (and other) news governments can use. Sign up to have it delivered every Friday to your inbox.

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