Hartford Prepares For Oversight, Debt Restructuring In Wake Of State Budget
Hartford Courant, November 16, 2017
By Jenna Carlesso
Hartford will move swiftly to secure additional funds made available under the recently adopted state budget, but the process could take months, and will depend on bondholder and labor union participation, Mayor Luke Bronin said recently.
The state budget, approved in October after months of delay, allows the city to get $40 million or more in extra assistance – funding Bronin has said is crucial to offset escalating deficits. That’s on top of about $270 million that Hartford is already expected to receive from the state.
Half of the additional aid – about $20 million – will come from an account set aside for financially troubled municipalities. The state has also signaled that it would take on at least $20 million of Hartford’s annual debt payments, which are expected to top $60 million by 2021.
In exchange for the funding, the city will be placed under an oversight board.
Legislative leaders hope to staff the panel in the coming weeks, and Bronin said work would soon begin on hammering out a debt assistance contract.
In the meantime, he has kept pressure on city bondholders and unions, whose willingness to give concessions could set the stage for how quickly Hartford recovers.
My hope is that all of our stakeholders, including bondholders and labor, understand this is a moment where we now have the tools to achieve sustainability outside of a Chapter 9” bankruptcy, Bronin said in an interview.
“But to do that we need everyone to come together and be a real part of the solution.”
The state’s oversight board, which will monitor finances in any Connecticut municipality that applies for extra aid, ranks cities based on their fiscal outlook. Tier one is the least serious, while a tier four ranking is the most dire.
Hartford would start out at a tier three.
To qualify for that, a town or city must have a bond rating that is below investment grade, a negative fund balance or an equalized tax rate of 30 mills or higher, and receive 30 percent or more of its revenue from the state.
Hartford’s bond ratings have plunged deep into junk territory; it has a $65 million deficit this year; and its tax rate is 74.29 mills, by far the highest in Connecticut.
Tier three status back to top
Under a tier three status, the oversight board must approve any new debt, may require the city or its school board to give notice of any contracts exceeding $100,000, and will monitor city budgets.
It also adds a new layer of scrutiny over Hartford’s unions.
The board may reject – as many as two times – each new labor contract and arbitration award.
And the secretary of Connecticut’s Office of Policy and Management, who is a co-chair of the oversight board, will sit in on union negotiations.
Ben Barnes, the OPM secretary, said he would act as a mediator to help speed negotiations along. A member of Hartford’s city council also will participate in the talks.
If the city’s financial outlook hasn’t improved by April, Hartford leaders can elect to move to the highest level of oversight – tier four. The board would then take control of union discussions and could select its own arbitrator.
Several Hartford union leaders said they aren’t concerned.
“I wouldn’t say it makes us nervous,” J. Sean Antoine, president of the Hartford Municipal Employees Association, said. “I feel the same as I did before: As long as people are willing to sit down and listen, and both sides work together … I’m OK with that.”
Larry Dorman, a spokesman for the American Federation of State, County and Municipal Employees Council 4, Local 1716, which represents about 400 city workers, said having a union leader on the oversight board has helped ease some fears.
“We will have a voice in this process regardless of who else is sitting at the table,” he said. “That certainly gives us some reassurance.”
The board would be composed of 11 members – five appointed by the governor and four tapped by legislative leaders, along with Barnes and the state treasurer.
Malloy’s picks will include a finance director, a municipal bond or bankruptcy attorney, a town manager, a union official and a representative of a teachers’ organization. Legislative appointees must have experience in business, finance or town management.
Lawmakers said they hope to have the panel assembled by late November. At least one member has been appointed.
Bronin is seeking a minimum of $4 million in employee concessions to balance his budget this year. He has advocated for deals similar to the one reached with Hartford firefighters, which included pay freezes and higher contributions for health insurance.
Dorman warned, however, that the city can’t rely solely on union givebacks.
“In the end, Hartford’s fiscal crisis isn’t going to be solved by the review board alone,” he said. “It’s going to be solved by taking a look at our out-of-whack tax structure ... and the other afflictions that have created the crisis in Hartford.”
One of the biggest pieces, Bronin said, will be a restructuring of the city’s debt.
A key component of Hartford’s recovery will be its ability to restructure its $600 million in outstanding debt.
The city’s annual debt contribution will climb to $44 million this fiscal year, up from $30 million last year. By 2021, it is expected to reach $61 million – about 20 percent of Hartford’s noneducation expenditures.
State officials have agreed to back $20 million or more of the city’s annual debt over the next two years, and that benefit could extend far longer depending on the contract that is now being negotiated.
Bronin has hinted that he may ask bondholders to take a haircut, but declined to reveal his strategy. Part of the deal might include a refinancing of Hartford’s debt.
There’s a lot of work left to do. — Hartford Mayor Luke Bronin
In October, the city’s two largest bond insurers offered a plan that would lower Hartford’s yearly payments to $40 million, but extend the life of the debt. Bronin said he’s open to it, but only as part of a broader effort.
As Hartford administrators prepare to work with the state, a familiar issue could become a sticking point: bankruptcy.
Lawmakers want assurances that Hartford won’t file for bankruptcy if they pick up debt payments. But Bronin won’t rule it out.
“I personally wouldn’t take anything off the table,” the mayor said. “We need to stay focused on the ultimate goal, which has to be putting the city of Hartford on a sustainable path.”
Once the oversight board is in place and the city’s debt has been addressed, Bronin said he’ll try to collect on a promised donation. The CEOs of three major companies – Aetna, The Hartford and Travelers Cos. – pledged to give Hartford $50 million over five years.