WASHINGTON -- Long-term sustainability is the next goal for Hartford now that a debt deal with Connecticut and a five-year plan are in place, according to Mayor Luke Bronin.
“While we have lots of work to do, we are in a stronger position than we’ve been in a long time,” Bronin said in an interview before his Monday evening keynote speech at the seventh annual Brookings Municipal Finance Conference.
In the speech, he scolded bond-rating agencies for not having red-flagged Hartford's problems sooner.
Reasons for optimism, Bronin said in the interview, include Hartford’s recent agreement for the state to pay off the principal on the capital city's roughly $540 million of general obligation debt over 20 to 30 years. In addition, the new state-run Municipal Accountability Review Board, to which Hartford must answer, has approved the city’s five-year plan that assumes no new borrowing.
The moves are intended to keep the 123,000-population city out of Chapter 9 bankruptcy.
According to Bronin, the stability plan relies on deep cuts at the city level, “very significant” contributions from labor unions, the agreement with the state and a conditional commitment from major insurers with headquarters in the city.
“One of the things we have worked hard to do and have done well is to bring all of our stakeholders to the table, to lay out a clear vision of where we want to go, and build a consensus among our stakeholders of how we can get there,” Bronin said.
“It’s going to be tough and tight budgets every single year, but what I hope is that at the end of the day, the markets will see a sustained commitment to discipline that they haven’t seen in a long time.”
Bronin, former chief counsel to Gov. Dannel Malloy, took office in January 2016.
“It’s a job none of us would even think of doing,” said David Wessel, director of Brookings’ Hutchins Center on Fiscal and Monetary Policy.
Hartford's fiscal 2019 budget includes a combined payment of $10 million from Travelers, Hartford Financial Services Group and Aetna Inc. It covers the first year of the commitment, with future support to hinge on the city’s fiscal progress.
Moody's Investors Service called the arrangement a positive for Hartford. Moody’s assigns the city its B2 issuer rating, while S&P Global Ratings assigns a BB-plus. Both are junk level. With the state's agreement to pay principal on Hartford GOs, the rating agencies upgraded those bonds to be on par with the state's GO bonds.
Hartford's downfall in the capital markets should not have been so sudden, according to Bronin.
“I think that depth of Hartford’s problems should have been apparent a number of years before,” he said. “And yet Hartford in 2015 – the year before I took office – was rated a single-A, double-A credit. And I don’t think that was justified at the time. Hartford’s fundamentals were much weaker than that.”
The city's ratings plummeted with revelations of its worsening financial condition.
“The downgrades didn’t start coming until after I talked about the problems,” he said.
Structural problems including its poverty rate and smallness – only 17 square miles – and an abundance of tax-free property owned by the state government or nonprofits were only part of the problem, according to Bronin.
“There were shortsighted decisions or bad decisions,” he said. “There were irresponsible refundings that left us with a rapidly escalating debt service.”
Scoop-and-toss transactions in 2013 and 2015, while dropping debt service from $30 million to $10 million short term, left the city with a projected $56 million of debt – despite no new borrowing -- by fiscal 2021.
“It was just crazy,” said Bronin, “and not surmountable in a responsible way.”
A year-to-year lifeline would have been a worse option than either a state agreement or bankruptcy, according to the mayor.
Speaking to a room of rating analysts and other public finance professionals, Bronin fired a warning shot.
“Don’t necessarily take it as a positive that a city is going to do everything it can to survive another year. Sometimes that makes it worse,” he said. "And I think sometimes that credit analysts look and say, so long as it looks like these guys are really terrified of bankruptcy, then everything’s going to be OK and the bonds are going to get paid off.
“Sometimes shining a bright light on a crisis and calling it out and bringing it to a head and be the best possible thing for long-term stability.”
The city has reached agreements with most municipal unions.
Rising pension payments have contributed especially to Hartford’s distress, said Stephen Eide, a senior fellow at the free-market oriented Manhattan Institute for Policy Research.
"Major Connecticut cities’ revenue needs would be far less pronounced if their liabilities were not so onerous," said Eide.
Hartford’s property tax revenues rose modestly —$2.7 million — between FY08 to FY17, according to Eide. Pension costs, however, surged by $16.7 million in real terms or about six times the increase in property tax revenue.
“The cycles are exacerbated by unfunded pension obligations that are not sustainable and affordable as well as the adverse effects of failing to fund essential services and needed infrastructure at an acceptable level,” said James Spiotto, a managing director at Chapman Strategic Advisors LLC in Chicago. “The answer is, how do we do better with economic development.”
According to Spiotto, development along the Connecticut River could spur growth in Hartford and offset outmigration, in which Connecticut is among the five leading states.
The Brookings conference enables academics, practitioners, issuers and regulators to discuss research on municipal capital markets and state and local fiscal matters.
The event began in Boston in 2012 and moved to Washington two years ago.
It is a joint venture of the Hutchings Center; Brandeis International Business School; Harris Public Policy at the University of Chicago; and Olin Business School at Washington University in St. Louis.