12 September 2017

Hartford in Chapter 9? Storm Clouds Brewing

There's been something of a lull in municipal Chapter 9 bankruptcies of late. Since Detroit (a couple of my posts here (before bankruptcy) and here (when it was over)), not much has happened. The extraordinary bull market in stocks, now about to enter its ninth year, has inflated the value of municipal and state pension investments and thus disguised how underfunded their pension systems really are.

But that may be about to change. Go here to read about Hartford, Connecticut. (You can read even more here in The Wall Street Journal but it's behind a paywall.)
Hartford Mayor Luke Bronin said Thursday that his city could file under Chapter 9 within 60 days without the necessary support from the state, labor unions and bondholders. Bronin seeks an additional $40 million from the state to avoid bankruptcy. Malloy and top lawmakers have said throughout the year that the budget provides enough to Hartford.
(Not surprisingly, given the highly-charged politics surrounding municipal bankruptcy, some members of Hartford's city council disagree.)

Back to the Mayor: "Without support from the state, labor unions, and bondholders." Just what does that mean?

Hartford is Connecticut's capital and is home to many insurance companies. Why can't it simply raise the resources it needs from its real-estate-tax-paying base? Why look to outsiders to solve Hartford's fiscal woes? Principally because the largest tax paying corporations like Aetna, can move out. And Hartford's human residents can't afford much more.

What Hartford wants from the state is quite simple: $40 million. All Connecticut taxpayers should chip in to help out Hartford, says the mayor. This isn't quite the shakedown it may seem. As Connecticut's capital, Hartford, like Pennsylvania's Harrisburg, is home to many state offices that pay no real estate taxes. Like  Harrisburg, providing public services to people and state-owned property that pay no taxes places an unequal burden on city taxpayers.

What Hartford wants from its union and bond creditors isn't as clear but I suspect it can be summed up in "less and more:" less pay and benefits for workers and less interest but more time from bondholders. Perhaps Hartford even wants bondholders to agree to less principal but I'm confident that's a nonstarter.

But what are the underlying causes of Harford's situation? For the answer to this complex question I'll send readers to my article When Doing Less Is Doing Best (also here). For some observations of what can be done I suggest Who Pays the Price: The Necessity of Taxpayer Participation in Chapter 9 (also here) and Who Bears the Burden: The Place for Municipal Residents in Chapter 9 (and here). 

One more thing: it's not only Rust Belt cities like Hartford. Go here to read the story behind the story of Seattle's battle to impose an income tax on its residents.

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