Hartford Warns It Could File for Bankruptcy -- Update

By Joseph De Avila Features Dow Jones Newswires

Hartford officials said Thursday it will likely file for bankruptcy in 60 days unless Connecticut provides help for the cash-strapped capital city in the midst of a fiscal emergency.

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City officials warned Gov. Dannel Malloy, a Democrat, and state lawmakers that Hartford, which has a deficit approaching $50 million, wouldn't be able to pay all of its bills within 60 days. Hartford officials said it would file for bankruptcy at that point unless the state legislature passes a budget that gives the city more funding or otherwise provides it with more cash.

"We face the greatest fiscal crisis in our city's history," officials said in a letter signed by Mayor Luke Bronin, Treasurer Adam Cloud and Thomas Clarke II, president of the court of common council.

"We could not agree more with the urgency of the situation, particularly for the City of Hartford," a spokeswoman for Mr. Malloy said. "We continue to hope to have a full budget adopted by October to mitigate the harm and avoid having towns or cities go through reorganization."

The state of Connecticut itself is facing its own fiscal challenges and has yet to pass a budget for the current fiscal year that would close a $3.5 billion spending gap. Since July 1, state operations have been funded by an executive order signed Mr. Malloy that has slashed funding for cities and towns across Connecticut.

Democratic Speaker of House Joe Aresimowicz said Wednesday he planned to call for a vote on the budget on Sept. 14 even though lawmakers have yet to reach a consensus on a spending plan. It is unclear if there will be enough votes in both chambers to pass it.

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House Democrats said calling for a vote on the budget will put pressure on lawmakers to choose between that spending plan, which likely would give more money to cities and towns, or the governor's executive order, which has made painful cuts to municipal funding.

"If you are not part of the solution, you are voting for the executive order," said House Majority Leader Matt Ritter, who represents Hartford.

Only 64 bankruptcies have been filed by cities, counties, towns and villages since 1954, according to James Spiotto, an attorney who tracks municipalities' bankruptcies.

The Californian cities of San Bernardino and Stockton filed for bankruptcy in 2012. The U.S. territory of Puerto Rico filed for a form of bankruptcy that incorporates parts of chapter 9 law, the type of protection used by struggling cities and counties earlier this year.

Rising fixed costs for health care and pensions have been driving Hartford's fiscal challenges. The city is on the hook for nearly $180 million in payments for debt service, health care, pensions and other costs for the current fiscal year. That is more than half of the city's budget, excluding education.

Hartford's officials said the city has a debt problem. The city said its law firm of Greenberg Traurig LLP will engage in negotiations with its bondholders and asked the state for its support.

"Our bondholders understand that our debt burden is unmanageable," city officials said in the letter. "They will need to be part of the solution today, through a serious, sustainable, long-term debt restructuring."

Hartford likely can't cut spending to solve its problems, according to a recent report by Moody's Investors Service.

"There is very little room for further cuts, given the reductions in services the city has already made and its fixed costs and education mandates," Moody's said. "Hartford would likely be eliminating, rather than reducing, core services."

Hartford officials said state assistance is the only way the city can avoid bankruptcy. City officials recommended that the state give the city more reimbursements for its nontaxable property. More than half of the property in Hartford, such as state buildings, hospitals and colleges, don't pay property taxes.

Hartford officials also asked the state legislature to create a new board to settle contract disputes with labor unions.

Write to Joseph De Avila at joseph.deavila@wsj.com

(END) Dow Jones Newswires

September 07, 2017 14:57 ET (18:57 GMT)