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Commentary By Stephen Eide

Connecticut's Spendthrift Capital Eyes the Wealthy Suburbs

Cities, Governance Tax & Budget

The mayor of Hartford—junk-rated and taxed to the max—talks up a ‘regional’ solution to the city’s woes.

When the Nutmeg State’s next legislative session begins in January, lawmakers will face two crises: a budget shortfall of more than $1 billion and the looming insolvency of Hartford, the capital city. Though it doesn’t make many national headlines, Hartford’s budgetary challenge—taxed to the max, junk-rated and facing escalating deficits—ranks among the most serious of any American city. Bankruptcy might be the only way out.

Hartford’s mayor, Luke Bronin, knows that a bailout from the cash-strapped state government is not a likely option. So he has turned to the suburbs for support in stabilizing the city’s budget. At a town meeting Monday evening in Rocky Hill, a pleasant bedroom community to the south, Mr. Bronin spoke in grand terms about how “investing in getting cities strong helps economic growth for the state as a whole.”

The mayor has talked up a “regional” solution to the city’s woes. Interpretations vary as to what that means, but Mr. Bronin has floated the idea of a regional sales tax. If it is to help Hartford’s bottom line, however, it would have to entail some sort of redistribution from higher-income areas.

Suburban taxpayers are perplexed as to how and why they should be responsible for Hartford’s long record of mismanagement. Even after closing a $49 million deficit for the current fiscal year, Mr. Bronin projects growing gaps between expenditures and revenues. Four years from now they will top $70 million, in a total budget of about $560 million. Hartford also owes $410 million in unfunded retirement liabilities and $562 million in bonded debt, according to its most recent audit. Moody’s downgraded Hartford’s credit rating to junk in October.

Payments to service the bonded debt are soaring (up 29% this fiscal year alone) due in part to the city’s habit of restructuring obligations to save on upfront costs. One-shot budget fixes—selling a parking garage for $14 million; transferring a city park to the retirement system and calling that a pension contribution—only go so far.

Thus, Hartford has had to both raise taxes and slash services. The city’s property-tax rate is not only the highest in the state, it’s 23% higher than the runner-up and nearly twice the levy in some neighboring suburbs. Subsidies for parades and festivals have been drastically reduced, and funding cut for senior-citizen programs. The city’s workforce, now about 1,300, is down 12% from five years ago. If Mr. Bronin fails to persuade Hartford’s unions to make $15 million in concessions, on which his current budget is based, more layoffs might be necessary.

In fairness to the mayor, who took office in January, he inherited this fiscal debacle and has pushed for changes. Last spring he called for the state to impose an oversight board, including both city and state officials, that would have special authority over union contract negotiations. The proposal got little support from Hartford’s own city council, much less the Democratic state legislature. Recently Mr. Bronin proposed enrolling new nonunion city workers in a 401k-style defined-contribution plan.

The mayor also wants Connecticut to increase the reimbursement it sends localities for land owned by the state or nonprofits. More than 50% of Hartford’s tax base is exempt. But that looks like a tough sell, too, given the state government’s own fiscal crisis.

Connecticut isn’t undertaxed. Its combined local and state tax burden is No. 2 in the nation, according to the Tax Foundation. It also tends to rank at or near the top of states in rankings of pension and bonded debt totals. Back in 2011 the Democratic governor, Dannel Malloy, pushed through the largest tax increase in state history. So he is reluctant to raise taxes to address the current deficit. The state might also want to be careful about allowing Hartford to somehow tap suburban taxpayers, since the legislature may want to go to that well itself in future years.

The Hartford suburbs are already on the hook for millions in costs associated with a “bailout fund” that the Metropolitan District Commission, the area’s water and sewer agency, levied in case the city can’t make its payments. Any new revenues raised to shore up the capital’s budget would wind up backfilling pension liabilities. Between 2006 and 2015, according to my calculations, Hartford’s pension costs rose 214%, whereas property-tax revenues grew only 25%.

All this explains why bankruptcy for Hartford is a topic of near-constant discussion. In Rocky Hill, Mayor Bronin played down the idea, raising fears about the “reputational stain on this entire state” that the move would cause. But the city is on the verge of insolvency, the state is tapped out, and there isn’t a persuasive case for a suburban bailout. Is there any alternative, in the end, to bankruptcy?

This piece originally appeared at The Wall Street Journal

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Stephen Eide is a senior fellow at the Manhattan Institute.

This piece originally appeared in The Wall Street Journal