STUMP » Articles » Waiting for Hartford to Default While State Legislators Throw a Little Cash Around » 24 October 2017, 05:35

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Waiting for Hartford to Default While State Legislators Throw a Little Cash Around  

by

24 October 2017, 05:35

Well, ain’t this sweet.

I’ve written about Hartford’s woes earlier:

So while there is a state budget proposal out there that should pass this week, it doesn’t really look like Hartford is being taken care of.

BOND RATING DOWNGRADE IN SEPTEMBER

27 September: S&P Lowers Hartford’s Bond Rating for the Second Time in 2 Weeks

In an ominous development, Standard & Poor’s has knocked down Hartford’s bond rating for the second time in two weeks, declaring that “a default, a distressed exchange, or redemption appears to be a virtual certainty.’‘

The agency said Tuesday that it had again lowered the city’s rating — to CC from B-, a four-notch plummet. The move came a day after Mayor Luke Bronin held a conference call with Hartford bondholders, and suggested he didn’t want to refinance the struggling city’s debt.

Now, Standard & Poor’s says it’s increasingly likely that Hartford — which expects to be short $7 million in cash in November and another $39.2 million in December — will default on its debt. Meanwhile, with $545 million in outstanding general obligation debt, Hartford faces debt payments of about $30 million in coming weeks.
…..
The city’s bonds had already been classified as junk.

Assured Guaranty, the city’s largest bond insurer, said Monday that it had made a proposal to Bronin to refinance the city’s debt, pushing payments further into the future but reducing immediate contributions. The mayor, however, said he would resist any plan that burdens the city for years to come.

28 Sept: S&P clarifies bond insurer stance in Hartford downgrade

S&P Global Ratings republished its four-notch downgrade of Hartford, Conn., to clarify that bond insurers Assured Guaranty Municipal Corp. and Build America Mutual Insurance are open to a traditional bond refinancing but not a bond restructuring or a haircut.

“We understand from the bond insurers that they are open to a traditional bond refinancing in an effort to head off a bankruptcy filing, but not a distressed exchange or bond restructuring where investors receive less value than the promise of the original securities,” S&P said Thursday.

Two days earlier, S&P downgraded Connecticut’s capital city four notches to a deeper junk CC. Moody’s that day dropped Hartford’s bonds two levels to Caa3, noting an “increased likelihood of default as early as November.”

LET’S BLAME THE STATE!

20 Sept: Is Connecticut to Blame for Hartford’s Looming Bankruptcy?

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.

Jeez, if the governor won’t promote Hartford for Amazon HQ2, I will.

That said, it does look like Hartford is going for it:


That said: “big city”? The biggest reason Hartford is having trouble is it’s teeny. West Hartford, where the rich Hartfordians live now, is only a few miles away from downtown Hartford. It’s so close, I often go over there at lunchtime. It’s a separate town! Hartford itself doesn’t even have 150K people.

THERE GOES UNION POWER

Hartford City Workers Nervous Ahead of Potential Bankruptcy Filing

In early September, city officials warned Gov. Dannel Malloy and state lawmakers that Hartford wouldn’t be able to pay all of its bills within 60 days and could seek authority to file for chapter 9 bankruptcy in early November unless the legislature provided the city with more cash.

Unions representing public employees say they are worried their members will be asked to make unreasonable sacrifices to fix Hartford’s financial problems even if the city doesn’t proceed with bankruptcy. Several municipal contracts have expired and need to be renegotiated.

Oooh, bad timing, public employee unions. Not like you can lever more money out of either the city or the state. So, what’s your leverage?

And then there’s this:

Rapidly increasing costs for health care, pensions and debt service have fueled Hartford’s fiscal challenges. The city must pay nearly $180 million—more than half of the municipality’s non-education budget—on debt service, health care, pensions and other costs for the current fiscal year.

Health care and pensions, you say? Seems like layoffs could deal with some of that….

BANKRUPTCY DIFFICULT FOR THE STATE TO STAVE OFF

Dan Haar: Hartford troubles could have wide impact

Early this week, the Business Council of Fairfield County will host Hartford Mayor Luke Bronin in Stamford to talk about a possible bankruptcy of the capital city.

Neither the council nor the mayor’s office announced the confab and there are no public events connected with Bronin’s trek down to the much healthier city that passed Hartford in population four years ago. But the gathering will amplify the idea that the pain from an ailing central city in a small state throbs from border to border.

I went looking — I can’t find info on this confab, either.

“We’re meeting with him because you can’t have a state in which its capital city goes bankrupt,” said Joe McGee, vice president for policy at the council and a former state economic development commissioner. “There’s got to be an urban strategy and Fairfield County has as much a stake in this as anyone.”

That’s true for lots of reasons, from the simple fact that residents and institutions in this part of the state could well hold hundreds of millions of dollars in shaky Hartford debt, to the more layered idea that state finances — read: stable taxes — depend on functioning cities across Connecticut.

Climbing the ladder of complexity, we have a bond market that may or may not punish municipalities not named Hartford in the event of a capital city bankruptcy — there’s a lot of debate about that among analysts.

And the most important worry: how Hartford’s ills will worsen the battered image of the state in places like Greenwich and Westport, not to mention Stamford and Norwalk, as these stronger cities and towns ply the narrative that businesses and families will love Connecticut’s quality of life.

For all those reasons, the argument goes, Connecticut simply can’t become the first state with its capital city in bankruptcy court. And yet it’s a real possibility. Just Thursday, two power brokers who guided Detroit through the nation’s largest municipal bankruptcy in 2013-14 came to Hartford to declare that a court filing is “another tool in the tool box,” nothing to be afraid of.

Look, if they really can’t pay their bonds, it’s better to go through an orderly bankruptcy process than to just out-and-out default and rev up the lawsuits.

There’s money in the current budget proposal for Hartford — and a big problem is that the state does this ad hoc appropriation to fund the city (which needs the help because the state government owns so much of Hartford property, and that can’t be taxed by the city.) And the money ain’t enough:

Unfortunately, this year’s $40 million infusion will stave off bankruptcy for only about nine months before Hartford needs another shot in the arm. What’s needed, what the whole state must back, is a long-term “structural reform,” to use the political phrase of the year.

If the state only barely patches up the problem year after year, without a deeper, strategic plan of the sort McGee and Bronin are talking about — a plan that will cost money from the towns that have it — Hartford might as well just go ahead and file for bankruptcy. We’d all be better off with a Chapter 9 municipal filing than a slow bleeding.

Yup. The state may not be able to do much about this. They are trying for a takeover:

The middle course now, favored by Sen. L. Scott Frantz, R-Greenwich, ranking Republican on the General Assembly’s finance committee, is a state takeover, similar to what we saw in Waterbury in 2002 and a modified version of Bridgeport in 1991.

The state legislature wasn’t interested in filling Hartford’s full financial appetite without taking over control. This was mentioned months ago — the mayor wasn’t interested.

I work a few blocks away from the state capitol building, and every so often I hear parades/protests go by. The main heat right now are teachers bitching they’ll have to increase their pension contributions from 6% of payroll up to 7% of payroll. [The employer contribution is at about 25% of payroll. ] This isn’t Hartford teachers — just all state teachers.

PREP WORK CONTINUES

Unlike Chicago & Illinois, and some other states, Hartford doesn’t need the state legislature’s approval before filing for bankruptcy. Hartford has been bringing in the consultants.

Notable municipal bankruptcy lawyer talks shop to Hartford taxpayers

HARTFORD (Reuters) – The lawyer who took Detroit, Michigan, through the largest Chapter 9 municipal bankruptcy in U.S. history brought his message to a new crowd on Thursday: residents of Hartford, Connecticut’s cash-strapped capital city.

Kevyn Orr, a partner the law firm Jones Day, and a panel of experts tried to fend off residents’ fears about whether city service might be cut (no), taxes might rise (maybe) or people might later get priced out of homes (it is complicated) if the city files for a court debt restructuring.

“Nobody wants to enter bankruptcy. I‘m sort of like an undertaker that shows up at the door,” Orr told attendees at a Hartford Public High School evening event.

But it is a long-term tool that helped both Detroit and Central Falls, Rhode Island, whose mayor was also on the panel, improve in the long run, Orr said.

Mayor Luke Bronin Says Budget Deal May Help Hartford But More Work Needed

The latest state budget agreement, reached last week, could help solve Hartford’s financial problems, but more work is needed to put the city on stable footing, Mayor Luke Bronin said Monday.

Lawmakers struck a deal that would give Hartford the extra $40 million it needs to avoid bankruptcy. Half of it would be funneled to the city from an account set aside for distressed municipalities.

The other half would come through a refinancing of Hartford’s debt. The state would assume at least $20 million of the city’s debt payments each year.

“It’s my understanding that the budget agreement reflects a bipartisan recognition that Connecticut needs a fiscally sustainable capital city, and that the agreement includes some important tools to help achieve that goal,” Bronin said in a statement Monday.

“Regardless of what’s in this budget, any truly sustainable solution is going to require the partnership and participation of all of our stakeholders, and we will have a lot of tough and important work left to do.”

Pretty much the leverage Hartford has is that it can declare bankruptcy. Many have seen this as a ploy to get more money out of the state, and it sounds like it did get some.

But municipal bankruptcy isn’t simple, so I assume that they’re still doing their planning. Because the problem is overhang from stuff like pension debt… which they’ll be able to discharge only through bankruptcy (as Detroit did).

There are solutions short of bankruptcy that can fix the outstanding bond issues:

Restructuring Hartford’s $604 million in outstanding debt could mean substantial losses for investors, the agency said. Another option would be to refinance the city’s bonds over a longer period, to 30 years.

That $604 million is just bonds. Not the pension debt.

(That article has nothing about Hartford pensions)

HARTFORD AND PENSIONS

This is a first pass. I looked at the most recent Hartford CAFR, and the main fund listed was the Municial Employees Retirement Fund. And they’ve got retiree health care/other postemployment benefits (OPEBs).

The unfunded OPEB as of 6/30/2015 was valued at $295 million.

The unfunded pension liability for MERF as of 6/30/2016 was valued at $390 million.

The total of just those two bits is $685 million. That’s more than the bond debt.

Got any plans for restructuring that?

So far, bankruptcy has been the only way these things have gotten “restructured”.

It really doesn’t inspire much of anything in me when I check out the page on the MERF. The most recent document in there is from June 2014. This is not particular to the pensions, for what it’s worth: the finance department page was last updated in 2013, the mayor’s office notes the mayor was sworn in January 1… 2016, and message from the mayor is still under construction.)

So.

I have a feeling the Hartford bankruptcy talk is still going to be live, no matter how much the state throws at the bond problem. The pension and retiree health benefits situation is at least as large.


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