Despite top property-tax rate in Connecticut, the state’s capital teeters on bankruptcy
Hartford, Connecticut’s capital city and hub of the state’s insurance industry, is edging closer to joining a small club of American municipalities: those that have sought bankruptcy protection.
The city’s $49.6 million budget hole and the impending departure of one of its biggest employers, Aetna Inc.,have shined a light on its unusual predicament: Half of the city’s properties are excluded from paying tax because they are government entities, hospitals and universities.
It has less taxable property than the neighboring suburban community of West Hartford, which has less than half of the population than its urban neighbor. And Hartford’s total property-tax receipts are about 25% below that of tony community of Greenwich.
“The root of the problem is you have a city built on a tax base of suburb,” said Mayor Luke Bronin.
The mayor said the small tax base along with growing fixed costs produced structural budget deficits that prior administrations sought to deal with through asset sales, short-term debt restructuring and property-tax increases.
Mr. Bronin is now asking for financial help from the state to help close Hartford’s budget hole.
“My goal and my hope is that legislators from around the state of Connecticut will recognize that Hartford cannot responsibly solve a crisis of this magnitude at the local level alone,” he said.
Around the U.S. the main source of funding generated by municipalities is property-tax revenue, contributing 47% of the money raised by local governments, according to the Lincoln Institute of Land Policy.
For capital cities like Hartford, much of the real estate is held by nontax paying government departments. Hartford, with a population of about 125,000, is home to the University of Connecticut School of Law, Trinity College, Hartford Seminary, and the state Supreme Court.
Other cities in similar situations include Boston where just over half of the property in the city is tax exempt. In Baltimore, about 32% of the property there is tax exempt, and in Philadelphia its 27%.
While most U.S. cities are reporting healthy budget reserves that have returned to prerecession levels, Hartford is among a small but growing group of municipalities that are confronting rising levels of fiscal stress, according to Moody’s Investors Service. Other areas grappling with long-term financial problems driven by poor revenue growth and rising fixed costs include Jackson, Miss., and Wayne County, Mich.
Only 64 bankruptcies have been filed by cities, counties, towns and villages since 1954, according to James Spiotto, an attorney who tracks municipalities’ bankruptcies. Detroit became the largest-ever U.S. municipal bankruptcy case in 2013.
Victor Medeiros, a public-finance ratings analyst with S&P Global Ratings which downgraded Hartford last month, said the city could face additional downgrades of several notches. The credit-ratings firm will be watching whether Connecticut can reach a timely budget agreement and what level of financial assistance the state will be able to offer the city, he said.
City officials say they believe Aetna will keep many of its 6,000 employees in Connecticut even after it announced last week that it was negotiating with several states to move its corporate headquarters out of the city where it has been based since 1853. The company has said it remains committed to its Connecticut employees and its Hartford campus.
The company and the four of the city’s other biggest taxpayers contribute nearly one-fifth of the city’s $280 million of property-tax revenue. Property-tax receipts make up nearly half of the city’s general-fund revenues.
Aetna, Hartford Financial Services Group Inc. and Travelers Cos., also Hartford’s biggest employers, have said they would collectively give the city a voluntary payout of $10 million annually over the next five years to help avoid bankruptcy. But the companies have said they want to see comprehensive changes in how Hartford is run.
The bigger concerns “are getting the city turned around where we can attract private-sector investment here to ultimately begin to drive” property taxes down, said Oz Griebel, chief executive of MetroHartford Alliance, a regional business group.
Since 2000, Hartford has increased its property-tax, or millage, rate seven times. The rate is now more than 50% higher than it was in 1998.
At the current level, a Hartford resident who owns a home with an assessed value of $300,000 currently pays an annual tax bill of $22,287, at rate of 7.43%. A West Hartford homeowner with a similar house pays $11,853 at a rate of 3.95%.
The city must pay nearly $180 million on debt service, health care, pensions and other fixed costs in the coming fiscal year beginning July 1. That’s more than half of the city’s budget, excluding education.
Mr. Bronin said one-time budget fixes and tax increases won’t cut it anymore. He said he won’t reduce the number of police officers or firefighters and added that further trimming back city services would be irresponsible.
Democratic Gov. Dannel Malloy on Wednesday said Hartford and the state Legislature would have to accept more oversight of the city’s finances in exchange for state assistance.
“I do not support additional monies going to our challenged urban environments without a review process,” Mr. Malloy said.
Connecticut House Majority Leader Matt Ritter, a Hartford Democrat, said everyone in the capital understands that it is in the state’s best interest to make sure the city has a sustainable future.
Bankruptcy “doesn’t just affect Hartford,” Mr. Ritter said. “It would affect neighboring communities, it would affect the state, it would probably affect our credit ratings.”
In our September InsidersPower newsletter, we detailed that the end of Socialism was coming and a global sovereign debt crisis was going to lead the way. The sovereign debt crisis is what led to the great depression and it is what is started again at the end of September 2015. It is expanding rapidly throughout the world now.
The latest polls show that most people who voted for Trump are satisfied. When the same questions have been asking about Hillary, the opposite response appears. The polls are actually showing that Trump would win a greater margin today than last year. This is interesting for it is confirming the collapse in socialized government with that began on September 30st, 2015. It was the start of the collapse in confidence in government. This cycle should intensify starting in 2018 running head long into 2020.
This is all good for the volatility in markets we see ahead. This is the same trend that produced BREXIT and just wiped out all mainstream parties in France.
Should you keep your money invested? Where should you invest? What should you buy? Should you own Gold? Should you own Stocks? The traditional Buy & Hold theory is going to wipe out millions of peoples retirements just like it does at the end of every debt cycle in history.
You Never Own Your Home.
The reality is that as long as there are property taxes in your country, state, province, county, or city . . . you are a renter until taxes are raised to the point you would rather walk away than pay them. Even if you no longer have a mortgage! That is why property taxes exist; to confiscate if necessary.
Recently, the government fabricated tax increases based upon renovations that never took place. For one woman, they simply took the money out of her account sending her into overdraft conditions when they claimed she did $79,780 in renovations to her tiny 860 square foot home when no work was ever done.
Governments are going bust everywhere and are desperate. This system of government pretending to represent the people when they act more like paying the Mafia for protection. In this case, you have to pay the government or else they take your home. You have no right to simply retire and die in peace. They tax you until you are dead and then demand taxes from your estate. We have all become simply economic serfs working for the landlord and we own nothing for they have the right to take everything if we cannot afford to pay what they demand. In this case, they just pretend you did something and send you a bill.
This is why I rank property dead last as an investment during socialisms deflationary global cycle. It is not movable in tough times. It always takes the greatest decline in value because of its illiquidity.
The population of Rome collapsed from 180AD because taxes kept rising and people were just forced to walk away. History repeats itself over and over again. So caution is advisable with real estate. Obviously, we need a place to call home. However, it should not be 80% of your assets. It should be limited to a portion of your portfolio that you can afford to walk away from and survive.
It’s a shame government turns so aggressively against its people. They are always the great destroyer of civilization.
This collapse of socialism globally started September 30, 2015 as I wrote then, it has started to pick up steam as you have seen with Greece, Brexit, the US elections, the progressive demise of the EU, and that of Brazil, Venezuela, and South America. Politicians do not want to get real jobs and will not go quietly as they never have in history.
An InterAnalyst basic membership can keep your retirement safe during bear market collapse and growing in bull markets.
Member Login Hi, (First Name) | Log Out
Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.