Debt assistance could cost Hartford other state aid

Keith M. Phaneuf / CTMirror.org file photo

House Minority Leader Themis Klarides and Senate Republican leader Len Fasano

A new state plan to pay off nearly $550 million of Hartford’s bonded debt led some legislators Wednesday to consider reducing other forms of aid to the capital city.

Asserting the plan never was properly authorized by legislators, House and Senate Republicans pledged Wednesday to try to reduce grants to the capital city to offset disputed debt assistance.

The GOP caucuses also called on Gov. Dannel P. Malloy’s administration and state Treasurer Denise L. Nappier, a Hartford Democrat, not to implement the new arrangement. But both offices signed it Wednesday. The deal also has been approved by the City Council.

Senate Democratic leaders also wrote the administration and Nappier, questioning whether the deal reflects what lawmakers intended. And while Senate Democratic leaders didn’t pledge to seek automatic reductions to traditional aid for Hartford, they did say the debt payments would be a factor when appropriating future grants for the city.

“We believe the budget violates the spirit of the historic bipartisan budget that was adopted this past fall,” Senate Republican leader Len Fasano of North Haven and House Minority Leader Themis Klarides, R-Derby, wrote Wednesday in a letter to the governor’s budget office and to Nappier.

GOP leaders were frustrated earlier this month to learn the city and the administration had reached an agreement to pay off Hartford’s general obligation debt. The annual payments on that debt are one of the chief factors Mayor Luke Bronin cited in late 2016 when he warned Malloy and the General Assembly that the capital city was at risk of bankruptcy.

The new, two-year state budget enacted last October — after a historic nine-month debate — provided two new forms of assistance to the city.

Lawmakers set aside $28 million in this fiscal year and again in 2018-19 for general aid to fiscally distressed communities that work with the new state Municipal Accountability Review Board. Legislative leaders from both parties said they anticipated Hartford would receive roughly $20 million of the $28 million to be distributed by the review board.

Another $20 million was set aside — in both this fiscal year and next — to help Hartford cover payments on its general obligation debt. Lawmakers also agreed that the city would seek to refinance its debt over the long-term, and that the state would guarantee this refinancing.

But Republican legislative leaders were stunned earlier this month when they learned the refinancing agreement between the city and its bondholders included a pledge from the state not only to provide debt payment assistance this fiscal year and next — but for the next two decades.

Over the next two decades, state payments to cover Hartford’s debt are expected to approach a total of $550 million — meaning the state essentially would pay off all of that burden.

“The agreement between legislative leaders and the understanding of legislators who voted for the budget was to provide Hartford two years of additional financial assistance with the goal of helping our capital city get back on its feet,” Fasano and Klarides wrote. “Lawmakers did not vote to pay off more than $500 million in Hartford’s debt over a period of 20 years.”

House Democratic leaders have said the deal does not violate the terms of the new state budget. That document does not prohibit the state from committing to make debt payments on behalf of the city beyond the 2019 fiscal year. It also does not guarantee any level of state aid to Hartford beyond the debt assistance.

But Klarides and Fasano said as far as the GOP caucuses are concerned, Hartford’s other grants must be reduced to reflect the debt assistance the city will receive in future years.

For example, the capital city currently gets about $320 million per year in traditional, statutory formula grants.

Kyle Constable / CTMirror.org

Senate Majority Leader Bob Duff, left, and Senate President Pro Tem Martin M. Looney.

If the city were slated to receive that amount in 2019-20 — the first fiscal year after the current, two-year budget has expired, GOP lawmakers would seek to reduce those grants by $45.7 million, the amount of debt assistance Hartford would receive that year.

The top Democrats in the Senate, President Pro Tem Martin M. Looney of New Haven and Majority Leader Bob Duff of Norwalk, also questioned whether the refinancing deal reflects the legislature’s intent.

In a letter to the governor’s budget office and to Nappier seeking a meeting, Looney and Duff also wrote that if this debt assistance is guaranteed to Hartford, their caucus would weigh that when voting on traditional grants for the capital city.

“Let us be clear: Any future debt service payments agreed to by the state of Connecticut for the city of Hartford will be taken into consideration when deciding total municipal aid for the city,” Looney and Duff wrote.

House Majority Leader Matt Ritter, a Hartford Democrat, said the Senate Democratic leaders’ position is reasonable.

“I agree with Senator Looney and Senate Duff that every year, Hartford — like every other municipality — must understand that all of its funding is subject to appropriation by the legislature and that, in future years, this debt service should be considered when determining aid for Hartford.

Keith M. Phaneuf / CTMirror.org file photo

House Majority Leader Matt Ritter, D-Hartford

But Ritter added that Republican leaders are unfair in asserting that all traditional grants must be reduced over the next two to reflect the debt assistance.

“I don’t see how that’s consistent with the goals we laid out,” Ritter said, adding that the GOP approach offers no flexibility.

“The state’s assistance came only after we made deep cuts, negotiated dramatic labor concessions, partnered with our biggest companies, and subjected the city of Hartford to intense and ongoing oversight,” Hartford Mayor Luke Bronin said.  “If Republican leaders regret the long-term partnership they embraced last fall, they should have the courage to call for our capital city to file bankruptcy, because that’s the only responsible long-term alternative to the partnership they supported last fall.”

Chris McClure, the spokesman for Malloy’s budget office, said, “If Senator Fasano and Representative Klarides don’t like the terms of Hartford’s financial assistance agreement, they need look no further than the closest mirror. Both Republican leaders negotiated and passed the biennial budget that included this authorization, and they did it with the Malloy administration out of the room. The deal that has now been structured and signed is fully within the statutory outline of the bipartisan budget. … This is just one more example of Republican leadership running away from the budget they passed.”

Nappier issued a statement Wednesday regarding her decision to sign the debt refinancing agreement.

State Treasurer's Office

State Treasurer Denise L. Nappier

“This plan, consistent with the state’s bipartisan budget adopted last fall, will help our capital city gain a path toward fiscal sustainability while giving the state strong oversight capabilities to protect its investment,” the treasurer wrote.

Nappier added that helping Hartford, through a system with appropriate state oversight, is in Connecticut’s best interests.

“A strong, vibrant capital city is essential to the health and well-being of the region and the state,” she wrote. “Declining to help Connecticut’s capital city could have adversely affected the financial health and vibrancy of surrounding towns, while helping Hartford actually might make a potential slippery slope of additional towns seeking relief less likely.”

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