Christine Stuart / ctnewsjunkie
Hartford Mayor Luke Bronin Saturday at a Yankee Institute forum (Christine Stuart / ctnewsjunkie)

WETHERSFIELD — The steps the state of Connecticut takes over the next few weeks will determine how the city of Hartford restructures its debt and whether it asks Gov. Dannel P. Malloy’s permission to file for Chapter 9 bankruptcy.

Hartford faces the possibility of default on $20 million in tax anticipation notes on Halloween, and the General Assembly has yet to approve a state budget that includes the funding the city needs to avoid default.

Earlier this month, Hartford Mayor Luke Bronin sent the governor and legislative leaders a letter saying that if the state does not have a budget in place in the next 60 days, the city would likely file for bankruptcy.

In the meantime, the General Assembly passed a budget that Malloy vetoed last week that did not include the additional $40 million the city wanted to avoid bankruptcy.

On Friday, Senate Republican President Len Fasano, R-North Haven, said that during bipartisan budget negotiations last week there was unanimous agreement that the state budget should include financial help for Hartford.

However, there needs to be a plan for how it goes about doing that, Fasano said.

“I do not believe it’s just forking over money,” he added. “There has to be strings attached.”

At a Yankee Institute forum Saturday, Stephen Eide, a senior fellow at the Manhattan Institute, said there are three options for cities like Hartford when they find themselves on the brink of insolvency.

“State intervention, bankruptcy, and regionalism,” Eide said. “My preferred solution is state intervention. This is because I consider states to be the main one responsible for the situation of poor cities with too much debt.”

Bronin, a Democrat, partly agreed.

He said if you eliminated every dollar of debt the city has, eliminated every dollar of pension obligation, and reduced the mill rate the city of Hartford would still have a deficit of $70 million.

“What we have built in Connecticut is a system that’s built to fail,” Bronin said. “. . . and we should not be surprised it’s been failing for decades.”

At least 51 percent of Hartford’s 18 square miles is not taxable property, including a trash-to-energy facility that serves 70 communities and a sewage treatment plant that serves Hartford and seven other communities.

“We cannot solve this problem by asking residents and businesses in our cities to bear a higher tax burden,” Bronin said.

He said if the state of Connecticut wants cities to succeed then it has to change its model of support.

“We cannot labor under the false assumption or the false belief just that there’s too much debt or that there’s too much pension,” Bronin said. “The problem is far more deeply rooted in the size of our cities, the amount of non-taxable property we have and the extent to which we’ve concentrated poverty and the extent to which communities around the state think they’re unaffected by the challenges of our urban centers.”

But members of the Hartford City Council worry Bronin is making a case for a Chapter 9 bankruptcy when restructuring under a state oversight panel, like was done in Waterbury, may be more advantageous.

Council Minority Leader Wildaliz Bermudez and Council President Thomas “TJ” Clarke II have said the majority of the council oppose bankruptcy.

Assured Guaranty Ltd., which insures about 57 percent of the city’s bonds, said it was willing to help the city refinance its debt by pushing payments out another 15 years. The city would then issue new longer-term bonds and use the proceeds to make the debt payments that are coming due.

The insurer has also met with state officials to better understand their willingness to help the city avoid bankruptcy.

Bronin doesn’t believe debt restructuring will solve the entire problem.

“The restructuring of debt could represent one important part of a multi-part plan for achieving sustainability outside of Chapter 9, but that path will only be available if all the other elements of a sustainable solution are in place, including a substantial and sustained increase in revenue from the State of Connecticut, as well as the participation of other stakeholders,” Bronin has said.

On Saturday, Bronin said there are only two paths to stability for the city of Hartford.

“One of them, which avoids a bankruptcy filing, requires a dramatic and sustained change in the amount of revenue that the city receives from the state,” Bronin said. “If the state of Connecticut is not able or prepared to commit to a partnership that actually makes success possible in the city of Hartford, then it will leave us with no other path to long-term solvency and strength than bankruptcy.”

If the city of Hartford files bankruptcy, an independent bond analyst says it could have a “contagion” effect on other cities.

“Should the city of Hartford actually default or be permitted to file for chapter 9 bankruptcy, other Connecticut cities are likely to face somewhat higher borrowing costs going forward,” Municipal Market Analytics said in its Sept. 25 report.

They said if Hartford files Chapter 9 bankruptcy, cities like New Haven “could temporarily (for a month or so) lose access to the traditional, high grade bond market. Similarly, the State of Connecticut would reasonably see its own borrowing costs rise as investors (rightly) assume that a Hartford bankruptcy hastens the state’s ongoing economic contraction, further hinders the state budget’s ability to fully fund long-term pension costs, and invites progressive ratings downgrades.”

A spokesman for the Malloy administration said they are concerned about the situation.

“We are concerned about the potential fallout from a bankruptcy in Hartford, which is why we have proposed realistic and reasonable steps to aid the city through this difficult period, including the municipal restructuring grant — which would provide the city assistance while simultaneously guiding it through a process that includes review and accountability,” Chris McClure, a spokesman for Malloy, said. “In addition, the lack of any real help to Hartford is one of many reasons we were compelled to veto the HB 7501. The financial health of Hartford has statewide consequences and we need to treat the situation seriously.”