STUMP » Articles » Connecticut: A Review While Waiting for a Budget » 27 September 2017, 20:55

Ah, Connecticut. The place where I work. The place that extracts a bunch of income taxes from me.

Woo.

And a state where the capital city is threatening filing bankruptcy (and at least going through some motions to look like they’re going to file)

My last full Connecticut post seems to have been in July… let’s see what the state has been up to since then.

CONNECTICUT PENSIONS AND THE BUDGET

Here are a few stories:

• Malloy says GOP plan would underfund state pensions
• With 5 More Democrat Votes, House Forwards GOP Budget to Malloy; Veto Expected
• New CT budget could shift teacher pension costs onto future taxpayers
• Business owners overwhelmingly want state pension reform, according to survey
• http://yaledailynews.com/blog/2017/09/07/malloy-pitches-pension-compromise/
• Connecticut’s unfunded pension liabilities grow $8.6 billion in six years
• Connecticut Liabilities Outpace Asset Growth – Liabilities more than double in 10 years, while assets gain 28%.
• CT Officials Pass Pension Concession Labor Pact-The state seeks to close a $5.1 billion shortfall in two years.
• Editorial: Connecticut An Outlier On Pensions
• Employees ratify state concessions deal by wide margin

By the way, regular old pension benefits aren’t even the only problem.

RETIREE HEALTHCARE IS EXPENSIVE

As Reason mentions, retiree health benefits are also a trouble:

The Hidden $700 Billion Debt Owed to Public Workers
…..
That’s largely because states don’t bother accounting for their so-called “Other Post-Employment Benefits,” or OPEB, costs in the same way that they do for pensions. Instead of putting money away year-after-year to pay for those liabilities, most states fund OPEB costs on what accountants call a pay-as-you-go basis, meaning that revenue is appropirated from the state budget each year to meet those needs. The majority of OPEB is in the form of health care benefits, including retiree health insurance and other expenses like dental, vision, life, and disability insurance.

States paid more than $20 billion towards OPEB costs during 2015, according to a new analysis from the Pew Charitable Trusts. That sounds like a lot of money, but it’s really just a drop in the bucket compared to the estimated $692 billion owed to public workers over the next few decades.
….
That’s a worrying tragectory. Many states are already struggling to fund their pension promises, which are eating away at parts of state budgets meant to fund schools, roads, social services, and more. Because most states fund OPEB costs directly from state budgets, the lack of long-term savings threatens to cause more budgetary pain.

Like in Connecticut, for example. Last year’s state budget (the current state budget is still being hammered out) projected $731 million to cover health care costs for retired state employees in 2017, compared to just $698 million for the health care costs of current employees.

Because Connecticut failed to save-up for the long-term costs of their retirees, state taxpayers are now paying more money to cover the costs of people who aren’t providing any government services—because they are retired—than for people who actually are.

Okay, Reason didn’t mention this, but I want you to think about something:

Whose health care costs are higher?

- People in their 40s?
- People in their 70s?

Which are receiving retiree health benefits?

In short, older people have more health problems, and if I recall correctly from some health actuaries, they told me the cost for 64-year-olds (right before they’re eligible for Medicare) is about 7x that of people in their 20s. So, it doesn’t take a lot of retirees to have their health costs be more than current employees.

WAITING FOR A BUDGET NOW 3 MONTHS OVERDUE

Here ya go:

• Where the Democrats and Republicans Stand on the State Budget
• Geno Auriemma offers to forgo pay in education budget battle
• New England’s Illinois: Connecticut’s Budget Mess Shows That States Can’t Tax Themselves to Prosperity – Dems want higher taxes on e-cigarettes, cellphone bills, vacation homes, hospitals, cigarettes, hotel rooms, Uber, nonprescription drugs, and fantasy sports.
• How Did America’s Richest State Become Such a Fiscal Mess? – Connecticut is home to many wealthy residents. Its state government, on the other hand, is feeling the consequences of what some call “two decades of bad decisions.”

So, we’re almost up to 3 months for the state budget to be overdue. That’s an increasingly common situation in the states:

Why a Record Number of States Passed Budgets Late This Year (If at All)
Politics and finances are largely to blame. But some say it’s a trend not worth worrying about.

As the number of split-power statehouses has increased in recent years, so too have late state budgets.

A whopping 11 states started their current fiscal years without a signed budget, and another 10 missed their initial deadline and had to call a special session to approve a spending plan. It’s the highest number of stalled budgets in recent memory and the product of increasingly tense political and economic factors.

…..
A big reason for states’ continued money problems is that the growth of their fixed costs is outpacing their annual revenue growth. “Pensions and Medicaid dollars are growing quickly,” Boyd says, “and not leaving much money to spend on the things you want to do.”

Politics are also to blame. The 2014 elections resulted in an increase in split-power states where the executive and legislative branches are controlled by different parties. Starting in 2015, at least half of the late or stalled budgets were in split-power states or where the legislature was split between two parties.

….
For example, Samuels says, some states are struggling under the weight of a systemic financial imbalance that prior budgets have papered over with one-time fixes. It’s becoming harder and harder each year to ignore the underlying problems as slow revenue growth and spending pressures mount.

Samuels points to Connecticut, which has struggled with annual budget deficits in the face of shrinking revenues and increasing costs. It is the other state that has yet to pass a fiscal 2018 budget as lawmakers try to solve a $3.5 billion budget gap over the next two years. The state’s late budget, though, doesn’t come as much of a surprise: It has been downgraded by ratings agencies several times over the past few years, mainly because it has solved its chronic budget shortfalls with one-time solutions.

Connecticut’s not alone in papering over budget shortfalls until it hits a wall. Illinois and Pennsylvania have routinely passed late budgets in recent years and have also faced downgrades for their chronic deficits.

No surprises there.

HARTFORD AND BANKRUPTCY

So while the legislators are milling about in the gaudy capitol building, Hartford has been pulling paperwork together.

Hartford, With Its Finances in Disarray, Veers Toward Bankruptcy

The problems in Hartford are similar to some other cities across the United States that have sought relief through bankruptcy: its tax base and population have shrunk and its pension obligations and debts have piled up. City officials, who are confronting a budget deficit approaching $50 million, have already made deep cuts in services, sought concessions from labor unions representing public employees and have taken steps, such as hiring lawyers, to position the city to be able to file for bankruptcy.

At the same time, Hartford has looked to the state for help, only to find that financial situation is also in disarray. The state, which has a deficit of about $3.5 billion, started the fiscal year on July 1 without a budget after months of wrangling in the State Legislature and a resolution could be weeks away.

“It’s one thing to persuade people around the state that cities matter,” said Luke Bronin, Hartford’s mayor. “It’s another thing to get the Legislature to adopt a budget that includes very deep and painful cuts, but includes support for Connecticut cities.”

…..
Beyond the city’s core, blocks are dotted with blighted buildings, some appearing to be overtaken by nature. Residents complain of parks that are poorly maintained and have expressed concern over violent crime. The Police Department is significantly understaffed, officials said, having lost more than 100 officers in recent years. The city’s library system recently announced the closure of three of its branches and other cuts have threatened community events, like parades and festivals.

The mayor said city leaders have been trying to strike a painful balance.

“We’re not afraid to do difficult things,” Mr. Bronin, a Democrat, said. “We’re not afraid to touch third rails while we do it.”

He added, “What we’ve tried to do is find that line where we’ve cut deeply because we know that the times demand it but we’re not cutting so deep that we fail to deliver our basic responsibilities.”

But even those onerous cuts may not be enough to relieve the situation. The state’s inability to balance the budget comes at a particularly challenging time, as state aid that would normally arrive in September has been held up, and the city faces a $27 million debt payment in October.

[Looking at the progress on the state budget… yeah, this may be an issue]

Bankruptcy Is On the Table in Hartford

Over the past several months, the shadow of a potential bankruptcy has loomed large over Connecticut’s capital city. Hartford is struggling to close a $50 million budget hole — nearly 10 percent of its spending — and has stagnant revenues. As a result, it has been downgraded into junk status.

Hartford officials have already cut the budget to the bone, and with one of the highest property tax rates in the state, Mayor Luke Bronin says he won’t raise them more. So now the question is, will the financially beleaguered state — which already pays for half of the city’s budget — step in with more aid? Connecticut, which is facing a two-year, $3.5 billion deficit, has yet to pass a budget more than one month into the fiscal year.

Meanwhile, the city is likely trying to restructure its debt with bondholders. But if that is unsuccessful, it could seek permission from Gov. Dannel Malloy to file for Chapter 9 bankruptcy. Either way, things are coming to a head with a $3.8 million debt payment due in September and another $26.9 million payment deadline in October.

The Takeaway: History has shown that municipalities in this kind of tight spot often don’t fare well. Take Detroit: Much like the Motor City, Hartford has massive fixed costs, revenues that can’t keep up and a state that is unable to help.

Still, it’s unclear whether Hartford will follow in Detroit’s footsteps and declare bankruptcy. A report this week from Moody’s Investors Service noted that Hartford’s debt restructuring “will be difficult because bondholders will balk until other measures are exhausted, including pursuing more labor concessions.”

Hartford could certainly default on its debt without filing for bankruptcy. But that would result in litigation and a potential restructuring that’s not ideal because it would do little to address the city’s full financial picture.

Is Connecticut to Blame for Hartford’s Looming Bankruptcy?

The state’s way of governing may be causing some of its capital city’s financial problems.

BY LIZ FARMER | SEPTEMBER 20, 2017

As Connecticut lawmakers debate the best way to close a $3.5 billion shortfall over the next two years, its capital city is having a fiscal crisis of its own, and it highlights how the state’s parochial way of governing hurts big cities.

Connecticut has long been touted for its wealthy suburbs. The state has one of the highest median incomes in the country. But the departure in recent years of businesses such as Aetna and General Electric to New York City and Boston, respectively, have sent a signal that times are changing: Connecticut doesn’t have the vibrant city life that many companies are looking for these days.

The state’s small-town mindset was recently on full display when Gov. Dannel Malloy appealed to Amazon to locate its second headquarters there. In his pitch, the governor didn’t cite Hartford or New Haven — two of the state’s biggest cities — as a selling point, but rather the state’s proximity to Boston and New York City.

That snub was acutely felt by Hartford, which is now on the precipice of bankruptcy. “I think one of the reasons Connecticut has been slower to recover from the Great Recession is that we long ago missed the boat and failed to recognize the role that cities play in economic development today,” says Hartford Mayor Luke Bronin. “If we want to position Connecticut to be competitive, we need to position our cities to be competitive.”

Bronin acknowledges that the idea runs counter to Connecticut’s highly parochial structure. “We have a state of 3.5 million people,” he says, “and it’s carved into 169 municipalities where every service is duplicated in every one of those municipalities.”

That may work fine for the suburbs. But for cities that are home to government and academic institutions that are tax-exempt, it means they are paying for more with a lot less revenue to draw upon. That is certainly true in its capital city, Hartford.

Half of its roughly $8 billion in property is tax-exempt. Hartford itself is home to fewer than 124,000 residents, meaning it has a small tax base that doesn’t cover the property tax revenue gap. Connecticut also doesn’t allow local sales or income taxes, so those options are off the table. And while driving through on Interstate 84 gives the impression that Hartford is comparable to any other mid-sized city, looks are deceiving. Further limiting the city’s tax base is the fact that the metro area is divided into three separate jurisdictions: Hartford, East Hartford and West Hartford (the latter two would merely be suburban outskirts of the center city in most other places).

Connecticut is fully of teeny-weeny towns, many of which are chock-full of rich people. I happen to know some of these rich suburbs have just as shitty finances as the state does in general.

8 September: Hartford Can Meet Financial Obligations For Only 60 Days; Bankruptcy Likely Without State Aid

Mayor Luke Bronin fired a warning shot at lawmakers and Gov. Dannel P. Malloy Thursday, saying Hartford would seek permission to file for bankruptcy if the city didn’t get the state aid it needs by early November.

In a sharply worded letter to House and Senate leaders and to Malloy, Bronin cautioned: “If the state fails to enact a budget and continues to operate under the governor’s current executive order, the city of Hartford will be unable to meet its financial obligations in approximately 60 days.”

The state budget stalemate is a threat to many Connecticut cities, but has posed exceptional problems for Hartford. Projections show the capital city, facing a $65 million deficit this year, will run into cash-flow issues in November and December, including a $39.2 million end-of-year shortage.

Malloy unveiled new budget proposals Thursday that would restore funding for municipalities and reject major education cuts planned for Oct. 1. Democrats and Republicans met in an attempt to reach common ground.

But Bronin warned that the “extraordinary measures” other towns are considering in response to the state’s ongoing budget gridlock — layoffs, cuts to services and drawing from rainy day funds — are actions Hartford has taken already.

In 2016, the mayor laid off 40 workers and cut millions from city departments. He also used most of Hartford’s rainy-day fund to help offset deficits.

Still, Hartford had to borrow millions in June to help pay its bills.
….
“I think there’s a reality that Hartford needs real and major restructuring that could be accomplished in a bankruptcy,” Malloy told The Courant Thursday. “It could be accomplished outside of a bankruptcy, but I think as days go by it becomes more likely that Hartford will be going bankrupt.”

…..
Last month, Moody’s Investors Service noted that the financially troubled city was rapidly approaching debt repayment deadlines. Hartford owes $3.8 million in September and $26.9 million in October.

The ratings agency said the city’s “path to fiscal sustainability will likely require debt restructuring along with some combination of labor concessions, other expenditure cuts and new revenues.”

City leaders stressed Thursday that they want a long-term solution to Hartford’s problems.

“We’re not interested in patches. We’re not interested in a short-term bailout,” Bronin told reporters at city hall. “We’re not interested in Band-Aids. And we’re not interested in leaving this problem for future legislatures or future mayors. … We’re interested in fixing this.”

Hartford Warns It Could File for Bankruptcy — Update

“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.

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.
……
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.”

The state can barely deal with its statewide obligations, much less bail out the capital city.

END GAME?

It doesn’t seem to me that the Connecticut legislators (or governor) have gotten their acts/plans/whatevers together.

Because here are stories from just the past couple days on Connecticut finances:

• No Connecticut Budget This Week, But Maybe A New Hospital Tax
• Still another snag in budget stalemate
• Connecticut proposed an unprecedented $300 million cut to its top public college that would ‘decimate’ the university
• In Dire Straits, Connecticut Nears 90 Days Without Budget
  

One can gauge the seriousness of how the legislators are taking this task via this detail:

Legislative leaders from both parties had their first face-to-face meeting since the Republican budget passed the House and Senate 11 days ago…

That piece of news was from yesterday. What the hell were they doing for those 11 days?

So yes. I’m unimpressed.

I have to pay their damn taxes, and I can’t even vote there.

Where’s the justice in that?

Finally, a fact from the NYT: Connecticut is the only state that has yet to pass a budget this year.

Even Illinois managed to pass a budget, as screwed up as it was.