August 11, 2017

Analysis: Prolonged budget quagmire exacerbates Hartford's fiscal troubles

HBJ File Photo
HBJ File Photo

[Editor's Note: This story has been updated with comments from the mayor.]

Moody's Investor Service this week alerted bondholders and the public that a continued delay in Connecticut's budget process will likely complicate the city of Hartford's efforts to extricate itself from its fiscal crisis.

Hartford Mayor Luke Bronin is considering debt restructuring, bankruptcy and other options as he waits for state lawmakers to pass a budget that's facing a deficit of more than $5 billion, though that shortfall has been offset by about $1.57 billion in savings achieved through a ratified labor concessions package.

In a seven-page "Frequently Asked Questions" white paper, Moody analysts note that the city will owe $3.8 million in debt payments in September -- less than three weeks away -- and faces another $26.9 million debt payment in October.

Moody's notes that the city currently has a B2 negative rating.

"Moody's rates debt, and since Hartford officials have openly discussed debt restructuring and hired legal counsel to assist with that, the agency decided to publish the 'FAQ' for anyone who owns Hartford bonds," said David Jacobson, Moody's vice president, communications – public finance group, in an email.

With the increasing chance of some combination of restructuring, default, or a Chapter 9 municipal bankruptcy, "there is a growing chance these bondholders will see losses," he said. "The FAQ is unusual but Hartford's situation is unusual, as municipal defaults and bankruptcies are rare occurrences."

Of the tools available, Moody's highlights options less likely to be used -- including raising property taxes and cutting expenditures further, but also reviews more plausible options like refinancing or restructuring debt.

Refinancing could be used "to alleviate pressure in ... high debt service years, which in combination with other actions, such as additional state aid and cost savings, could stabilize the city's finances," analysts wrote.

Bronin said in an emailed statement that the report shows just how much cooperation is necessary beyond the local level to address the city's issues. That includes "real" participation from labor, bondholders, other stakeholders and "a new partnership" with the state, he said.

"We're managing our liquidity, but we will face significant stress in the second quarter of the fiscal year, and that pressure will build quickly without a state budget," Bronin wrote. "While we're very concerned about liquidity, we're also focused on the ultimate goal of sustainability, which requires much more than simply managing liquidity. That's why we are examining all of our restructuring options.

"The entire state of Connecticut should feel invested in the success of our effort, because a fiscally sound and strong Hartford is vital for Connecticut's economic future."

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