Hartford's Credit Rating May Be Cut Deeper Into Junk by Moody'sBy
Hartford, the beleaguered Connecticut capital, may have its credit rating cut deeper into junk by Moody’s Investors Service amid uncertainty over whether the state will extend a lifeline to help the city close a $50 million budget shortfall.
Moody’s rates Hartford’s $550 million of general-obligation bonds Ba2, two steps below investment grade. The company said Tuesday that it’s conducting a 90-day review of the city that will take into account how much Connecticut, which is facing a two-year deficit of about $5 billion, can give Hartford in the budget to be adopted over the next several weeks. Connecticut was downgraded by all three major bond rating companies earlier this month, after plummeting income-tax collections widened the government’s deficit.
“Unable to generate significant incremental revenues internally or to cut expenses further, the city is primarily relying on increased state aid to close its budget gap," Moody’s wrote in a report. “At the same time, the state of Connecticut’s fiscal position has become weaker over the last year."
Hartford’s ability to increase property-tax collections, a key source of revenue, is constrained by its already high levies and sluggish real estate market, Moody’s said. About half of the property in Hartford is tax-exempt. A proposal by Governor Dannel P. Malloy to allow municipalities to levy a property tax on hospitals hasn’t gained traction in the legislature.
Cost-cutting opportunities in the city are limited because the city has already gone through previous rounds and labor negotiations haven’t led to concessions, Moody’s said.
The city’s large deficits are driven by escalating costs for debt service, pensions and health care, without sufficient revenue growth to offset them. The city has considered soliciting proposals from law firms that specialize in municipal bankruptcy, according to the Hartford Courant newspaper.
“While reflecting prudent contingency planning for a shortfall in state funding without a viable alternative solution, we believe it also indicates increased willingness by the city to entertain bankruptcy as a tool to address its growing fiscal pressures," Moody’s wrote.