Hartford, Conn., Mayor Luke Bronin called a four-notch downgrade to junk by Moody's Investors Service "a sober assessment" of his city's fiscal state.
Moody's, in the latest hit to Connecticut's capital, drilled Hartford late Friday with its second four-tier general obligation bond rating hit in two weeks, lowering city GOs to Ba2 from Baa1. The move affects roughly $550 million of debt.
On Sept. 22, S&P Global Ratings knocked 125,000-population Hartford to BBB – though still investment grade – from A-plus after dropping it from AA-minus earlier in the year.
Moody's, which retained a negative outlook, had downgraded Hartford to Baa1 from A3 in April.
Bronin, who has said the city could run out of cash by year's end, repeated his call for regional and state help.
"For many months, we've been shouting from the rooftops what Moody's independent assessment reinforces, which is that the city of Hartford cannot cut or tax its way out of a fiscal crisis that's structural and has been decades in the making," said Bronin, who took office in January.
Moody's, in a commentary that paralleled S&P's, cited projected deficits for fiscal 2016 and 2017.
"The city has limited operating flexibility, exacerbated by weak and declining reserves and rising costs [including debt service and pension payments] over the next several years," said Moody's. "The rating action also factors in narrowing liquidity and expansion of the current year budget gap since our last review."
According to Moody's, city prospects for stabilizing its budget have worsened over six months, as $16.5 million in labor concessions have yet to materialize. Additionally, the city said it is tracking additional unbudgeted expenditures in 2017 and forecasting large out-year deficits.
"The city's options for addressing the growing revenue/expenditure mismatch and eliminating the structural imbalance are limited with property tax revenue constrained by an already high tax rate and prospects for additional state aid limited by the state's own fiscal challenges," said Moody's.
"Further expenditure reductions will prove difficult after cuts in the current and prior fiscal years and extended negotiations with unions," said Moody's, which cited the probability of "external assistance" from the state or region.
Bronin's proposals for outside assistance include a regional tax and the lessening of city reliance on the property tax. More than half of Hartford's property is off the tax rolls because of government or nonprofit ownership.
"I encourage everyone to read the full Moody's report, which is a sober assessment of Hartford's fiscal reality, and should be a call to action for the region and the state," said Bronin, the former chief counsel to Gov. Dannel Malloy.
"With less taxable property than small suburbs like Glastonbury or Manchester, and with more than half of Hartford's property non-taxable, the fiscal structure is fundamentally broken."
According to Municipal Market Analytics, Hartford relies excessively on state aid, which dropped by $45 million in fiscal 2016 from the previous year.
MMA pointed to high, escalating fixed costs such as debt service, pensions and other post-employment benefits that amount to 19% of Hartford's fiscal 2017 expenditures, and a depressed tax base where more than one-third of the population lives below the poverty line and unemployment reached nearly 11% in July.
Moody's said an established trend of structurally balanced operations, a boost in reserves and liquidity and a substantial tax base growth and improvement in residential wealth and income levels could lead to a Hartford upgrade.
Factors that could trigger more downgrades, said Moody's, include continued deficits; further weakening of liquidity and erosion of reserves; overreliance of one-shot budget measures and further state-level financial weakness affecting city aid.
Connecticut this year received three general obligation downgrades from bond rating agencies, all of which cited the dwindling reserves. S&P, Fitch Ratings and Kroll Bond Rating Agency assign AA-minus ratings to state GOs while Moody's Investors Service assigns an equivalent Aa3 rating.