City of Hartford, Connecticut Risks Potential Default

By Mack Wilowski, National News Editor

In Connecticut’s capital city, local government and municipal leaders noted that Hartford could be faced with an imminent bankruptcy in sixty days, unless Connecticut provides financial assistance and emergency funds to avert a crisis. Faced with a mounting deficit approaching $50 million, city officials are becoming skeptical of whether Hartford can pay its bills on time. Municipal leaders notified and consulted with Connecticut’s Democratic governor, Dannel Malloy, on the necessity of a financial aid package to assist the cash-strapped city. Should Hartford default on its debts, a scenario that is looking increasingly more likely, the city would declare Chapter 9 Bankruptcy, which differs from other forms of bankruptcy protection in that it involves municipalities – cities, towns, boroughs, and villages.

The purpose of a Chapter 9 bankruptcy involves providing a financially distressed city or area of residence protection from its creditors while allowing for the renegotiation of debts and the restructuring of the city budget. Additional assistance measures include reducing interest payments on debt and allowing for a longer maturity period on debts owed. These types of bankruptcy proceedings are rare in the United States – only 64 such bankruptcies occurred in the United States since the early 1950’s. It is much more common for firms and corporations to declare Chapter 11 bankruptcy than for cities to make similar declarations. Historical examples, however, include the 1994 filing by Orange County, California, filings by San Bernardino and Stockton in 2012, as well as the more publicized bankruptcy of Detroit in 2013, in the aftermath of the financial crisis.

In a letter to the governor of Connecticut, Hartford Mayor Luke Bronin, Treasurer Adam Cloud, and other delegates described the dire fiscal condition of the city very openly, stating: “We face the greatest fiscal crisis in our city’s history. Correspondents to Governor Malloy, in their response to the city council, fully acknowledged the potential consequences facing the city. “We could not agree more with the urgency of the situation, particularly for the city of Hartford,” responded a spokesperson for the governor.

Compounding Hartford’s problems are fiscal woes facing the state of Connecticut itself. The state has so far failed to pass a budget for the 2017 fiscal year amid a $3.5 billion shortfall and spending gap. Failure to reach an agreement among members of the state legislature would make it nearly impossible for the capital city to receive its desired financial assistance. In recent months, funding for municipalities and towns across Connecticut has been diverted to the state government in an attempt to reduce debts and mitigate the fiscal woes of the state. The payoff, however, has been negative for both small and large cities across the state, particularly for Hartford.

Officials are hopeful about a proposed September 14 vote on a state budget that, if successful, could allow for the implementation of additional funding measures. The vote, however, will likely cause a rift between members of the legislature who prioritize reorganizing the state budget as the key objective, versus those who want to reverse the funding cuts imposed on municipalities and cities. In the meantime, tensions between the state government and municipal officials in Hartford have heated up. On Thursday, September 7, Mayor Luke Bronin warned state officials that Hartford would be ready to declare bankruptcy within two months if state funding is not allocated successfully.

The chief causes for Hartford’s fiscal problems, according to many analysts, are rising pension and healthcare costs, which make up almost half of the city’s budget. Such spikes in healthcare costs are due to an aging population in Connecticut amid stagnant population growth, as increasing numbers of baby boomers retire and many younger workers choose to relocate due to job opportunities in other states. The city has already made extensive cuts in its budget and public services to address the problem. However, this has not proved sufficient to fully counter rising costs – and further budget cuts would likely be harmful to public services and the education system. With no other alternatives remianing, city officials find themselves in a fiscal quandary. As a result, either state assistance or a formal bankruptcy declaration and restructuring could prove to be the only way out of the situation.

Indeed, a formal bankrptcy declaration would allow the city to reorganize finances and address long-term liabilities, such as the burgeoning deficit in pension payments. Regardless of the potential benefits, city and state officials must formulate a quick response to the problem. Moody’s Invesment Service recently noted in a report that Hartford owes $3.8 million in September and $26.9 million in October. While city officials remain optimistic of an agreement being reached with the state government, others are skeptical. For the moment, Hartford’s near-term future grows increasingly uncertain, as its residents and public officials anxiously await a solution to the city’s financial woes.

 

A version of this article appeared in the Tuesday, September 12th print edition.

Contact Mack at

maciej.wilowski@student.shu.edu

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