A major Wall Street credit-rating agency, Moody’s Financial Services, has upgraded Hartford’s bond rating in response to a new state plan to retire the capital city’s bonded debt.
Moody’s announced Thursday that the A2 rating assigned to the city’s general obligation bonds “reflects the strong legal provisions governing the state’s obligation to make contract assistance payments on the bonds pursuant to a contract for financial assistance, and the essentiality of the state’s commitment to its capital city.”
The city had a rating of Caa3, which is considered junk bond status and is 13 steps lower on Moody’s ratings scale.
A more favorable bond rating could help the city borrow at lower interest rates when financing future projects through the sale of bonds on Wall Street.
Since the fall of 2016, Hartford Mayor Luke Bronin has warned that without additional assistance from the state, the city’s finances were at risk of insolvency in the 2017-18 fiscal year.
“Today’s dramatic ratings upgrade underscores the importance of the comprehensive work we’ve done to put the City of Hartford on a sustainable path, through deep and difficult cuts, significant labor savings, the engagement of our business community, and through a new partnership with the State of Connecticut,” Bronin said. “Over the past two years, we’ve made tens of millions of dollars in spending cuts, negotiated significant savings and structural changes with our labor unions, brought our big employers to the table, and worked with legislators of both parties to build a new partnership with the state, recognizing that half of Hartford’s property is non-taxable and that you cannot run a city on the tax base of a suburb.”
Bronin added that “the new partnership with the State of Connecticut was the last, essential piece of our effort to stabilize Hartford’s finances — in an honest, transparent, and comprehensive way.”
But that debt assistance plan, recently signed by Gov. Dannel P. Malloy’s budget office and by state Treasurer Denise L. Nappier, has been a source of contention at the state Capitol.
Some legislative leaders from both parties have asserted the deal, through which Connecticut would pay off about $550 million in city debt over the next two decades, went beyond the level of assistance legislators intended.
The new, two-year state budget enacted last October provided two new forms of assistance to keep Hartford out of bankruptcy court.
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 the budget — 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 leaders in the House and GOP and Democratic leaders alike in the Senate said they didn’t envision the state making any debt payments on behalf of Hartford after the 2018-19 fiscal year.
The only exception would be if the city defaulted on a payment. At that point, the state — as guarantor of the refinancing — would have to cover the defaulted payment.
“This objective analysis makes it clear that the contract assistance agreement, including the strict accountability measures it provides, was a much-needed intervention for our capital city, and resulted in a strengthening of both of our positions in the bond market,” said Chris McClure, spokesman for the governor’s budget office. “There is still much more work to be done to stabilize the city and state’s financial futures, as this is but a first step, but obviously a positive one to Wall Street.”
House Majority Leader Matt Ritter, a Hartford Democrat, supports the debt assistance deal and says it does reflect the legislature’s intent.
“If the ultimate goal in the bipartisan budget was to avoid bankruptcy, put Hartford on a more stable path, and ensure massive infusions of state money are not needed year after year, this is a step in the right direction,” Ritter said Thursday of Moody’s announcement.