by Tyler Durden
Well, that escalated quickly.
Just two months after Standard & Poor’s downgraded its general obligation debt to junk status, warning that the historic Connecticut capital could soon follow other once-proud cities like Detroit into bankruptcy, Hartford city officials confirmed as much when they warned on Thursday that the city could be forced into insolvency within two months if the state doesn’t provide emergency financial relief, the WSJ reports.
“City officials warned Gov. Dannel Malloy, a Democrat, and state lawmakers that Hartford, which has a deficit approaching $50 million, wouldn’t be able to pay all of its bills within 60 days. Hartford officials said it would file for bankruptcy at that point unless the state legislature passes a budget that gives the city more funding or otherwise provides it with more cash.
‘We face the greatest fiscal crisis in our city’s history,’ officials said in a letter signed by Mayor Luke Bronin, Treasurer Adam Cloud and Thomas Clarke II, president of the court of common council.”
Hartford has been plagued by political corruption and a disintegrating corporate tax base – most recently exemplified by health-insurance giant Aetna’s decision to move its corporate headquarters away from the city, which was once proudly called “the Insurance Capital of the World.”
And unfortunately for the struggling capital, political discord involving both lame-duck Gov. Dannel Malloy and leaders in the state legislature suggests that an agreement to save the city won’t be forthcoming.
State legislators won’t return from recess until next week. But according to the Connecticut Mirror legislative leaders have yet to reach a budget deal with Malloy after failing to pass one in late June, forcing the governor to fund the state’s operations using emergency measures, slashing funding for municipal services across the state.
“We could not agree more with the urgency of the situation, particularly for the City of Hartford,” a spokeswoman for Mr. Malloy said. “We continue to hope to have a full budget adopted by October to mitigate the harm and avoid having towns or cities go through reorganization.”
As WSJ points out, the state of Connecticut is struggling with unprecedented fiscal challenges of its own. Its leaders must pass a budget to close a $3.5 billion spending gap.
In a situation that echoes President Donald Trump’s struggles with Republicans in Congress, Malloy has found himself butting heads with members of his own party during the budget-negotiation process. To wit, the Democratic
Speaker of the Connecticut State Assembly Joe Aresimowicz has said he will call a vote for the budget plan on Sept. 14 to try and force lawmakers’ hands.
“Democratic Speaker of House Joe Aresimowicz said Wednesday he planned to call for a vote on the budget on Sept. 14 even though lawmakers have yet to reach a consensus on a spending plan. It is unclear if there will be enough votes in both chambers to pass it.
House Democrats said calling for a vote on the budget will put pressure on lawmakers to choose between that spending plan, which likely would give more money to cities and towns, or the governor’s executive order, which has made painful cuts to municipal funding.
‘If you are not part of the solution, you are voting for the executive order,’ said House Majority Leader Matt Ritter, who represents Hartford.”
Only 64 bankruptcies have been filed by cities, counties, towns and villages since 1954, according to James Spiotto, an attorney who tracks municipalities’ bankruptcies, who told WSJ.
The Californian cities of San Bernardino and Stockton filed for bankruptcy in 2012. The U.S. territory of Puerto Rico filed for a form of bankruptcy that incorporates parts of chapter 9 law, the type of protection used by struggling cities and counties earlier this year. Detroit filed for bankruptcy in 2013, though there was some disagreement in the courts about whether the city was eligible to file. It has since exited bankruptcy.
Hartford likely can’t cut spending to solve its problems, according to a recent report by Moody’s that was cited by WSJ.
“There is very little room for further cuts, given the reductions in services the city has already made and its fixed costs and education mandates,” Moody’s said. “Hartford would likely be eliminating, rather than reducing, core services.”
As with other troubled cities and states, the rising cost of paying out generous health-care and pension benefits for municipal employees are two of Hartford’s biggest fiscal challenges. The city owes nearly $180 million in payments for debt service, health care, pensions and other costs for the current fiscal year, according to WSJ. That’s equivalent to more than half the city’s budget, excluding education.
Rising fixed costs for health care and pensions have been driving Hartford’s fiscal challenges. The city is on the hook for nearly $180 million in payments for debt service, health care, pensions and other costs for the current fiscal year. That is more than half of the city’s budget, excluding education.
Hartford officials said its law firm Greenberg Traurig LLP will engage in negotiations with its bondholders, and asked bond holders to be “part of the solution,” to which we say…good luck with that.
“Our bondholders understand that our debt burden is unmanageable,” city officials said in the letter. “They will need to be part of the solution today, through a serious, sustainable, long-term debt restructuring.”
Despite the city’s fiscal woes, developers are trying to revitalize Hartford’s downtown by building condos, hoping to attract millennial young professionals who purportedly prefer to live in urban environments. Whether this effort is successful at attracting what could be a crucial new component of the city’s tax base has yet to be determined. This summer, the developer of a recently build soccer stadium that was plagued by cost overruns and shady financing scandals has been convicted of fraud and money laundering.
For their part, city officials have asked the state to reimburse it for its nontaxable property, more than half of which consists of state-owned buildings, as well as colleges and hospitals. They’ve also asked the state legislature to create a new board to settle contract disputes with labor unions.
But with the state still struggling with a crisis of its own making, it’s unclear whether any help will be forthcoming.
Like they say: One drowning man cannot help another drowning man.