Gubernatorial rivals find rare common ground on municipal bailouts

mark pazniokas / ctmirror.org

Ned Lamont (file photo)

Ned Lamont, Bob Stefanowski and Oz Griebel rarely see eye-to-eye.

But when it comes to weighing bailouts for distressed municipalities, Connecticut’s gubernatorial contenders share far more in common than not.

That applies both to their assessments of this year’s bailout of Hartford, as well as how and when the state should help distressed municipalities in the future.

“I do not consider Hartford a template for what I would do,” Lamont, the Democratic nominee, told the CT Mirror.

“There needs to be some element of common sense,” said Stefanowski, Republican nominee, adding that with the Hartford bailout, “We didn’t get that.”

Independent candidate Oz Griebel, former chief executive officer of the MetroHartford Alliance, said the Hartford bailout “set a horrific precedent. There was no structural change.”

Bailing out the capital city was a source of controversy almost from the moment Mayor Luke Bronin warned that the city was at risk of slipping into insolvency within the next year or so if it didn’t get help.

Legislators voted in October 2017 to appropriate about $80 million in assistance for the city — $40 million in the 2017-18 fiscal year and $40 million this year. 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 many lawmakers were stunned in March when they learned that under the assistance deal Gov. Dannel P. Malloy and state Treasurer Denise L. Nappier signed, the state would pay about about $40 million annually for 20 to 30 years —  until the city’s entire $530 million bonded debt is retired.

Malloy and Nappier said lawmakers critical of the bailout didn’t understand that the bill they enacted authorized the state to pay off Hartford’s bonded debt.

To make matters worse, shortly after the debt assistance went into effect, the city’s bond rating was upgraded, while the state’s was downgraded.

The bailout plan should have included some sacrifice on the part of Hartford’s creditors, Stefanowski said.

Griebel and Lamont echoed those concerns.

“Hartford ended up being a bailout for the bond-holders and the bond insurance guys,” Lamont said.

“It seems all we ever do is slice off one aspect of the problem,” Griebel added, referring to the state’s decision to assume Hartford’s debt payments. “Everybody has to be at the table.”

The Malloy administration has noted on several occasions since the deal was enacted that it imposed numerous new fiscal controls on the capital city, including making state approval required for new bonding by Hartford.

But what happens going forward if other cities or towns get into financial trouble?

Malloy secured legislative approval for a new state Municipal Accountability Review Board, an early intervention program to identify communities at risk before fiscal insolvency is imminent.

The board employs a four-tiered system for ranking communities with problems.

No city or town currently is classified at Tier 4, which is the worst ranking and typically involves a community already in default on certain payments.

But there are two municipalities — Hartford and West Haven — classified as Tier 3, which reflects significant fiscal distress, according to the state Office of Policy and Management. A preliminary projection also lists Bridgeport and New Britain as having the potential to reach Tier 3 status.

All three of the gubernatorial candidates said they would not rule out some form of state bailout, while also adding it would look very different from the Hartford deal.

“You don’t want to wait around for a town to declare insolvency,” Griebel said. Early intervention is key, he added, because any city’s declaration of bankruptcy likely would threaten the bond ratings not only of that municipality, but also those of its suburban neighbors.

“It’s not about threatening a community with bankruptcy, but making sure that option is not taken off the table,” Griebel said. But if a restructuring plan could be crafted involving the distressed community, its debt holders, and possibly even major local corporations, then the state should consider providing financial assistance as well, he said.

Mark Pazniokas / CtMirror.org

Bob Stefanowski (file photo)

“I think you need to have a plan to deal with communities at risk of fiscal insolvency,” Stefanowski said. “But I don’t think we should just be throwing money at it.”

The Republican nominee also said he would consider direct financial assistance — provided a community was willing to restructure its local budget, reduce costs, and accept oversight.

“The state definitely has a role to play,” Lamont said, adding that “we just don’t have the balance sheet” to cover hundreds of millions of dollars in debt costs for all struggling cities and towns.

“We should help by taking the lead in restructuring long-term obligations,” he said, adding that a modest amount of financial assistance is acceptable “if it’s part of a real and honest (local) budget solution.”

Despite the considerable common ground on this issue, there still are points of disagreement.

Lamont fears Stefanowski’s plan to phase out the state income tax will devastate municipal aid, putting many of Connecticut’s poorest communities at risk, while Stefanowski has said on many occasions he believes Lamont intends to increase state taxes and further impede the state’s recovery from the last recession.

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