Hartford must restructure debt to get state help to avert bankruptcy
Hartford would have to restructure its debt to get the state assistance needed to keep it out of bankruptcy, according to sources familiar with the tentative state budget deal.
But Connecticut also would guarantee a major refunding of the city’s debt and cover a major share of the city’s debt payments — at least for this fiscal year and next.
Legislative leaders would not discuss specifics of the deal, but House Majority Leader Matt Ritter, D-Hartford, said it was part of a bipartisan compromise that recognized the need to avert bankruptcy.
“This budget gives the city all of the tools it needs to be on a structural path to sustainability,” said Ritter, who praised leaders from both parties for recognizing the need for a vibrant capital city. “This solution truly is a bipartisan one.”
Hartford Mayor Luke Bronin has said the city needs about $40 million annually in new state assistance to avert bankruptcy.
Sources said the new budget includes $28 million per year for a new Municipal Accountability Review Board — the state panel proposed by Gov. Dannel P. Malloy to target municipalities at risk of fiscal insolvency and to intervene beforehand. About $20 million of that $28 million would be earmarked for Hartford.
Much of Hartford’s fiscal trouble is driven by debt service which — because of refinancing gimmicks employed under previous administrations — is projected to be a major cost driver through the 2021 fiscal year.
Assured Guaranty and Build America Mutual, two major insurers of city bonds, urged Hartford officials in late September to refinance its debt.
Bronin did not rule out that option, but has been cautious about extending the city’s debt repayment schedules — which almost certainly would cost Hartford more in the long run.
The new state budget would require Hartford to restructure a significant portion of that debt. But Connecticut also would guarantee this refinancing, helping the city to obtain a more favorable interest rate.
The budget deal also calls for the state to pay $20 million of the city’s annual debt service — at least for this fiscal year and next.
That $20 million in debt payments, coupled with the $20 million from the accountability review board, would raise the total state aid to the city to $40 million per year over the new biennium.
And though specific projections were not available, Hartford’s annual debt service costs also would drop in the short-term because of the refinancing.
“We haven’t seen the details of the agreement, but it’s my understanding that it includes a framework that would allow the state to partner with the city in a sustained way,” Bronin said Thursday. “If that’s true, and if all of our stakeholders are prepared to be a part of the solution, then it may give us the ability to work together to put the city on a path to sustainability.”
“It’s our hope the legislature will approve a budget that provides substantial and sustainable funding for Hartford and will allow us to work with the city towards a successful turnaround that avoids the significant and long term damaging effects of municipal bankruptcy to the city of Hartford and the state of Connecticut,” Build America Mutual wrote in a statement released Thursday.
Bronin’s plan to put Hartford on better fiscal footing also relies on union concessions, jobs lost to attrition, various programmatic and other spending cuts, and $10 million in annual assistance pledged collectively by Hartford’s three largest insurance companies — Aetna, The Hartford and Travelers.
The industry, which has remained in talks with the city and the legislature, has said the aid must be part of a sustainable plan to stabilize Hartford’s finances, and not a short-term fix.
The city not only has Connecticut’s highest commercial property tax rate — at 74.29 mills or $74.29 for every $1,000 of assessed value — but 51 percent of its property value is exempt from taxation. That includes hospitals, universities, an airport, a trash-to-energy plant, and numerous state offices and facilities.
Long a repository for most of the region’s poor, the city’s median income is about $29,000 per year, and 46 percent of Hartford children live in households with incomes under the federal poverty line.