Connecticut Would Back Hartford's Bonds in Deal to Save CityBy
Mayor of city facing bankruptcy says plan makes him ‘hopeful’
Moody’s has warned a default could come as soon as next month
Connecticut would guarantee bonds issued to refinance Hartford’s debt and pay $20 million of the city’s interest bills over the next two years as part of budget agreement hashed out by state lawmakers that would help rescue the capital from financial collapse.
The provision in the spending plan, if passed by lawmakers and signed by the governor, may allow Hartford to avoid becoming the biggest city to go bankrupt since Detroit four years ago. Mayor Luke Bronin has said he would need to explore that step if the state doesn’t pass a budget that helps close the city’s $50 million budget gap and gives it a stronger hand in negotiations with public employees. He also wants concessions from bondholders.
“We are hopeful," Bronin said during a panel discussion on bankruptcy in Hartford. "At the same time, we have an obligation to prepare for all possibilities."
He added that he hopes the lawmakers’ proposal "changed the course a little bit.”
Hartford’s bonds have tumbled since credit-rating companies cut the securities deeply into junk grade, and Moody’s Investors Service has warned that the city could default as soon as next month. With a third of its 123,000 residents in poverty, Hartford has struggled to revive the local economy and eliminate shortfalls in its budget, in part because property owned by the state, hospitals and universities is exempt from real-estate taxes.
The debt refinancing plan from state lawmakers was first reported by the Connecticut Mirror website.
It’s possible that the refinancing proposal could fall through if Governor Dannel Malloy opposes the larger budget deal. The governor has been at loggerheads with lawmakers for months, leaving the state still without a budget for the fiscal year that began in July.
House Speaker Joe Aresimowicz, Democrat, said at a news conference in the capitol that the legislature is prepared to pass the bi-partisan budget plan "by an overwhelming margin" and send it to the governor. He said a vote will be held next week.
A bankruptcy by Hartford would have to be approved by the governor. At the panel discussion Thursday, Detroit’s former emergency manager, Kevyn Orr, said such a step would give the city a fresh start but would be painful for retirees who face the prospect of losing pension and health benefits.
Detroit cut its $18 billion in debt by $7 billion, leaving some bondholders with pennies on the dollar and reducing retirees’ benefits. Bondholders took much larger haircuts, though: They had average recovery of 25 cents on the dollar, while public employees recovered about 80 percent of what they were owed, according to Moody’s Investors Service.
“The arc of going through the process is often time painful. But at the end if you do it correctly it is quite rewarding," Orr said.