Hartford Warns It Could File for Bankruptcy -- Update
Hartford officials said Thursday it would likely file for bankruptcy in 60 days unless Connecticut provides help for the capital city in the midst of a fiscal emergency.
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 chapter 9 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 Democratic 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 is facing its own fiscal challenges and has yet to pass a budget for the current fiscal year that would close a two-year $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 the House Joe Aresimowicz said Wednesday that he planned to call for a Sept. 14 vote on the budget, 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.
House Democrats said calling for a vote on the budget would 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, a Democrat, 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. Among them, the Californian cities of San Bernardino and Stockton filed for bankruptcy in 2012, and Detroit filed for bankruptcy in 2013.
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 officials said the city has a debt problem. The city said a law firm it hired, Greenberg Traurig LLP, will engage in negotiations with its bondholders.
"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 Hartford the full amount of what it is owed under a state formula that reimburses municipalities for nontaxable property. That would give the city an additional $52.3 million this fiscal year.
Taxes aren't levied on more than half of the property in Hartford, such as state buildings, hospitals and colleges.
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 email@example.com
(END) Dow Jones Newswires
September 07, 2017 17:22 ET (21:22 GMT)