Why is Hartford broke?

Hartford Mayor Luke Bronin recently said that Hartford is “in a state of fiscal emergency,” with projected budget deficits of 30 percent this year and into the future. Why is this happening?

The short answer is that the City of Hartford can’t raise enough revenue to cover its costs. This can’t be explained as solely a short-run or managerial problem. It is a long-term challenge, and municipalities, regions and the state need the tools to address – and prevent – future fiscal emergencies.

In 2015, the Federal Reserve Bank of Boston’s New England Public Policy Center analyzed the fiscal situation for every town in Connecticut to measure non-school fiscal disparities and the key drivers. The study showed that cities – like Hartford – have limited ability to generate revenue and face a range of costs. The costs are driven by the same things that make cities great – their role as jobs centers and economic engines for the region. The study helps identify the causes and potential resolutions to municipal fiscal disparities across the state.

First, what did the study rule out as the cause of fiscal gaps? Factors such as poverty, population size, foreign-born population and blighted housing were not significant cost factors by themselves, according to the study. This may be surprising. Many are quick to equate fiscal gaps with the many challenges that cities face, but the study shows that the impact of those challenges is through their effects on unemployment and housing prices.

The study also looked beyond managerial factors as a cause. Hartford faces a structural deficit, one which cannot be explained only by managerial inefficiency. This is not a new problem. Hartford has had budget challenges and restructuring task forces and commissions for many years. Hartford – just like any city – can do more to cut costs, to run efficiently and to generate revenue. But the Federal Reserve study demonstrates the limits to those changes. The revenue and cost drivers identified in the study are “largely outside the control of local officials.”

So why is Hartford stuck? One reason is that Hartford has the largest municipal gap in the state, according to the study, 14 percent more than Bridgeport, the next largest. As the study calculates it, Hartford’s capacity to raise revenue is just 30 percent of its municipal costs, the lowest ratio in the state. (By way of comparison, Greenwich, New Canaan and Darien each have revenue capacity more than 375 percent of their costs.)

Revenue is one side of the equation. Because the main source of revenue for towns in Connecticut is property taxes, large fiscal disparities exist across cities and towns in Connecticut. The concentration of poverty within Hartford further reduces home values and the potential to generate revenue.

Hartford’s costs are also the highest in the state. The Federal Reserve identified five factors that drive municipal costs – paradoxically, many of the same factors that make cities like Hartford thrive. The cost drivers are: population density (the essence of a city), jobs per capita (which require a range of municipal services), private sector wages (which drive up the wages required to attract and retain qualified municipal staff), miles of town roads (maintained, in part, for commuters) and unemployment.

Towns – again, like Hartford – that have significant shares of non-taxable property are further challenged. State grants for roads, PILOT funds and the Local Capital Improvement Program and other property tax relief remove some of the disparities. In Hartford, these grants cover 31% of the municipal gap. Thirty-seven towns in the state receive grants that cover a higher share of their municipal gap, from 40 percent in Hebron to over 1,000 percent of the municipal gap in Suffield.

The hard truth is that many communities in Connecticut – primarily cities and rural areas – are in a bind. These communities have minimal ability to raise funds and bear the costs for housing regional assets and economic activity.

In his State of the City address, Bronin identified three ways to resolve the long-run challenges for Hartford: state support, regionalization and targeted investments for growth. Research supports each of these. The fiscal disparities study suggests that – even in a tight budget environment – the state can improve the distribution of state nonschool grants. A prior Fed study identified potential gains from regionalization for emergency services, public health and pension plan administration. Removing policy barriers to regional cooperation and truly – as the Mayor said – “breaking down boundaries” between towns has further potential to reduce more than fiscal disparities. A third Fed study on older, industrial cities – including Hartford – identified investments to transform the economy and attract and develop human capital as keys to long-term growth. Research has identified the ingredients to revitalize communities like Hartford – now is the time to make it happen.

Michelle Riordan-Nold is executive director of the CT Data Collaborative, a public-private partnership that advocates for the public availability of open, accessible data to drive decision making in Connecticut at the state, regional and local levels.

Scott Gaul is director of the Community Indicators Project at the Hartford Foundation for Public Giving. The foundation and eight other regional organizations produce an annual report about the state of the Hartford region, Metro Hartford Progress Points.