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The nearly bankrupt city of Hartford, the state capital of Connecticut, was bailed out by the fiscally troubled state government of Connecticut last week. Jenna Carlesso of the Hartford Courant describes the city’s bailout package that will avoid the city having to officially declare bankruptcy:
The state’s bailout for Hartford has cleared its final hurdle, with a unanimous vote by the city council Monday that allows Connecticut to pay off the struggling city’s $550 million in general obligation debt over the next 20 years.
Those payments will begin as early as this week – the state will pick up Hartford’s $11 million debt contribution due April 1. It will pay another $1 million on the city’s debt by June 30.
Hartford leaders said the deal was essential in helping the city to avoid bankruptcy.
“This was the state of Connecticut recognizing that we do not want our capital city going into bankruptcy,” Council President Glendowlyn Thames said Monday. “That has long-ranging repercussions for the region and for the state of Connecticut, so they stepped up and provided us with a new framework.”
The bailout is coming as a bipartisan surprise to many of the state’s legislators, who had voted last October on a state budget deal to provide support to Connecticut’s capital city, WTNH‘s Mark Davis reports:
Some legislative leaders say the deal for the state to pay off half-billion dollars in bonded debt for the City of Hartford is not what they thought they were voting for back in October. Sen. Martin Looney (D-New Haven), the Democratic Senate President Pro tem saying, “We did not, at the time, assume that it would be the state paying the entire debt for twenty years.” The Republican Senate President Pro tem, Sen. Len Fasano (R-North Haven) saying, “I think the Democratic majority leaders did not understand that the Governor had a different purpose for the language that was in that bill.” And the House Minority Leader, Rep. Themis Klarides (R-Derby) adding, “We made the decision to give them a two year ‘life line,’ an additional $40 million in a two year budget.”
But the agreement that has emerged from that vote back in October, has the state making those debt payments for the city starting this week and for the next 20 years. Democratic House Majority Leader Matt Ritter, who represents Hartford in the Assembly, appears to be the only one besides Mayor Bronin, with that understanding of the legislation and the deal saying, “The state is paying it, it’s the same thing legally
speaking, the guarantee, the state is making the payment.”
Most lawmakers apparently thought the state was just guaranteeing the payments; like a parent guaranteeing a loan for a son or daughter, with the expectation the son or daughter would make the payments.
Instead, they will be paying all of the city’s $550 million of unsustainable debt under the language of the October 2017 budget deal developed by state governor Daniel Malloy, whose tenure in office has been characterized by tax increases and larger spending increases, chronic deficits and the highest tax-supported state debt per capita in the nation.
So much so that Connecticut’s state government is having trouble borrowing money. Reuters‘ Hillary Russ reports on what happened when the state tried to borrow $620 million last week:
Connecticut, one of the lowest rated U.S. states, cut the size of its general obligation bond deal this week by 15 percent to $526.4 million, according to final pricing information on Thursday.
The Connecticut Treasurer’s office did not immediately reply to a request for comment on why the deal shrank from $620 million.
Typically, a deal can be reduced because investors wanted more yield than the issuer could pay, or because demand for the bonds was lower than expected.
Final prices on the deal did not change from preliminary levels. The state’s spread over top-rated municipal bonds widened since it last issued similar debt a year ago.
That means that the state, which has budget problems and high debt levels despite being one of the wealthiest in the country, had to pay more to borrow in part because of its credit woes.
With such costs, filing for bankruptcy may very well have been a better course of action for Connecticut’s state capital. At the very least, taking that action would not have transferred the burden of Hartford’s looming insolvency onto a financially-strapped state government that doesn’t have the capacity to bear the additional burden. Much less the taxpayers of Connecticut.