The majority leader in Connecticut’s Democrat-controlled House of Representatives said he “can’t envision any scenario" in which Hartford would seek to declare bankruptcy if a bipartisan budget that provides a financial lifeline to the capital city becomes law.
Matt Ritter, who represents Hartford and is the second-most-powerful Democrat in the House, said the budget would give the city about $20 million in aid from a fund for distressed municipalities and provide $20 million a year to cover costs on its bonds. Hartford would also be able to issue debt backed by Connecticut, which would allow it to save money by refinancing at lower rates.
“It doesn’t mean the city is out of the woods yet, they have to govern locally and make decisions," Ritter said in a telephone interview. But “if this bill passes the state would have done above and beyond what was asked of us. The state would have given the city all the tools and resources it needs to put itself on a firmer footing."
Hartford’s bonds have tumbled since credit-rating companies cut the securities deeply into junk grade, and Moody’s Investors Service has warned that the city could default as soon as next month. If it went bankrupt, it would be the biggest U.S. city to do so since Detroit’s collapse four years ago.
Hartford will get cash “very, very quickly" if the legislature’s bipartisan budget is signed into law, said Ritter, who is also a municipal-bond attorney at Shipman & Goodwin LLP in Hartford. Lawmakers may vote on the budget this week. Ritter said he wasn’t worried about the city’s ability to pay about $20 million in notes due Oct. 31.
Mayor Luke Bronin said the capital city would be pushed to seek bankruptcy by next month if the state fails to enact a budget and provide the city with additional aid. Hartford, where a third of its 123,000 residents live in poverty and about half the property is tax exempt, faces a $50 million deficit, nearly 10 percent of its budget. In the last year, debt costs have almost doubled to about $60 million while pension and benefit payments increased almost 30 percent.
“No matter what’s in the state budget this year, any truly sustainable solution is going to require the participation of all of our stakeholders -- including labor and bondholders, " Bronin said in an emailed statement. “That means we’re going to have a lot of tough, important work left to do.”
Hartford’s police officers have been working without a contract since July 2016. The city’s biggest civil employees union in May rejected a contract that would have saved the city about $4 million over six years, according to the Hartford Courant. Bronin hasn’t specified the concessions he’s asking for.
Connecticut’s bipartisan budget would also establish a Municipal Accountability Review Board composed of representatives of the governor’s office, the state treasurer and labor whose powers would depend on the “tier" that municipalities are designated. In tier 3 municipalities, like Hartford, the board would have the power to review all collective bargaining agreements, arbitration awards and bond authorizations.
Connecticut’s Special Capital Reserve Fund, which would be used to back newly issued Hartford bonds, is a longstanding mechanism to provide additional security for authorities or municipalities by guaranteeing to replenish draws on debt-service reserves. The state used the SCRF program to back $100 million in deficit financing by Waterbury as part of a bailout of the city in the early 2000s.
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Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.