A new report details the fiscal challenges faced by Connecticut’s four biggest cities and concludes that one of them – Hartford – won’t be able to resolve its budget shortfalls without financial assistance from the state.
The report, Connecticut’s Broken Cities, was prepared by Stephen D. Eide, a senior fellow of the Manhattan Institute in partnership with the Hartford-based Yankee Institute.
The Yankee Institute believes the report “demonstrates that there are significant problems with how city leaders have chosen to spend tax dollars – particularly when it comes to employee retirement benefits.”
The four cities the report focuses on are Hartford, Bridgeport, New Haven, and Waterbury. It found all four cities have struggled with deficits in recent years, but Hartford’s problems far outweigh those of the other three cities.
Hartford Mayor Luke Bronin has been visiting neighboring communities talking about the city’s fiscal problems, but Eide’s report concludes that the only way for Hartford to avoid bankruptcy is for the state to step in and help it out.
“There is a strong case to be made that Connecticut state government should focus its fiscal distress efforts on developing a solution that is custom-tailored to Hartford’s current struggles,” Eide concludes. “Trying to develop a more general policy aimed at helping poor cities risks becoming a solution in search of a problem, because, for the time being, Waterbury and Bridgeport, and most likely also New Haven, can continue to muddle through without the need for extraordinary support from the state. The same cannot be said for Hartford.”
Eide predicts Hartford will need a state bailout or bankruptcy protection.
If Hartford was going to file for bankruptcy, it would need the state’s permission.
“Connecticut is considered a ‘conditional authorization’ state; no Chapter 9 petition may proceed without ‘the express prior written consent of the Governor’,” according to Eide. “ Not only must the state authorize any bankruptcy petition before it can proceed, it would have to decide whether to impose some sort of state oversight or takeover regime before or after the petition was filed, or perhaps even in lieu of allowing the petition.”
In his speech on Jan. 4, Democratic Gov. Dannel P. Malloy, said he plans to recalculate municipal aid formulas to make certain “we can help ensure that no Connecticut city or town will need to explore the avoidable path of bankruptcy.”
The report describes Hartford’s finances as being “in a state of crisis.”
“At 34.4 percent, Hartford’s poverty rate is eighth highest in the nation among cities with population above 100, 000,” the report says. “According to the recent town-level estimates by the state’s departments of Labor and Economic and Community Development, Hartford’s unemployment rate is not only the sole locality hovering close to the double-digits, but ranks last among all 169 localities in Connecticut.”
“Bridgeport, Waterbury and New Haven at present are far more fiscally stable than Hartford,” the report states. “Mayor (Luke) Bronin’s administration projects deficits of over $20 million in fiscal year 2018 and $50 million in fiscal year 2019. These deficits come after a $48.5 million deficit for the current fiscal year 2017 budget.”
The report continues that further mill rate increases in Hartford, “where only 23.5 percent of occupied housing units are owner-occupied, would tempt many landlords to abandon their properties if they believed they could raise rents to offset the increased tax burden.”
In the current fiscal year, Hartford is devoting over $70 million in general fund spending to pensions and debt service. This sum is projected to increase by over $20 million in 2018, but it could be reduced substantially via bankruptcy, according to Eide’s report. If the city did file for bankruptcy it would “gain leverage to restructure collective bargaining contracts,” but there’s also an inherent risk about the uncertainty and the associated costs.
Last year, a newly-elected Bronin pitched legislation that would help him better negotiate with the city unions. But it was swiftly panned by the unions and elected officials, including state Treasurer Denise Nappier.
Bronin wanted to create a nine-member panel to negotiate Hartford’s labor contracts. The process would be different than the traditional arbitration process where the city or the union could appeal a contract to a three-member arbitration panel, which typically would have the final say. This new temporary committee would have the final say on labor contracts and would require the city to enter negotiations over retiree health and pension benefits, too. Whatever the committee decided would automatically go in effect unless it was voted down by five of the nine city council members.
Kenneth Blue, a public works leader in Hartford and president of AFSCME Local 1716, said through the collective bargaining process ” we’ve saved the city millions of dollars.”
However, at the same time, the city is dealing with lower staffing levels and greater demand for services.
“We keep the City of Hartford running. We are not the problem,” Blue said, “A better long-term solution is to fix Connecticut’s out-of-whack tax system that starves our cities, punishes working class folks, and lets hedge fund managers and insurance executives off the hook.”
In a phone interview Wednesday, Bronin said he’s been saying for months that there’s no way out of this without help from the state.
What type of help the state is willing to give Hartford remains to be seen.
“I’ve made it very clear for many months that’s we’re not afraid of accountability and we understand there may be strings attached,” Bronin said.
The report points out that even if Hartford obtained every dollar it’s seeking in labor negotiations, it doesn’t come anywhere close to putting the city on a stable path.
The report says that even if Bronin “is able to win the $15.5 million in concessions he is seeking from city unions during the current fiscal year, Hartford still faces a structural deficit of $30 million in FY18, projected to rise to about $80 million by FY22.”
While he largely agrees with the observations made by the report, Bronin said it fails to point out that the goal for Connecticut cities shouldn’t just be “solvency, it should be vibrancy.”
What Should The State Do To Help?
Eide’s report concluded that state government can help cities regain their financial footing by “reforming retirement and medical benefit programs by giving local managers more leverage in contract negotiations, such as through reforming binding arbitration laws or removing certain elements of compensation from collective bargaining entirely.”
The Yankee Institute says the report demonstrates the need for state legislators to reform binding arbitration laws – a move it says won’t only provide relief to big cities but “will help every Connecticut municipality achieve greater fiscal stability.”
“Rather than spreading failure from Connecticut’s cities, lawmakers should pass straightforward labor reforms,” said Carol Platt Liebau, president of the Yankee Institute. “Municipalities of all sizes can prosper together when taxpayers can control local spending.”
The report also argues against the concept of regionalization, which has been touted by Bronin and other officials as part of the solution.
“Municipal mergers are not known for producing major savings, as salaries and benefits, the largest expenses of urban and suburban localities, tend to rise to the highest level, “Eide writes.
He said “regionalization implies redistribution on a community-to-community basis,” and if that’s the case then it may only weaken state support of social services for the poor.
“State government should not implement any policies aimed at generating more revenues for localities, such authorizing a regional sales tax, or a state sales tax increase with the revenues dedicated to increasing the reimbursement rate for tax-exempt property, without also acting to facilitate reductions in city spending,” Eide concluded.
Senate President Martin Looney, D-New Haven, has proposed legislation that would allow municipalities to levy a half percent sales tax on top of the 6.35 percent sales tax the state collects. Looney said there would be no strings attached to letting municipalities keep the half percent added at the municipal level. There are currently strings attached to the half percent of the sales hat the state redistributes under legislation enacted in 2015.
Local elected officials complained last week that the restrictions on receiving the money are too burdensome. There is also a penalty involved.