In his state of the state address Jan. 4, Gov. Dannel P. Malloy sketched out a plan to "ensure that no Connecticut city or town will need to explore the avoidable path of bankruptcy." Though details were sparse, he implied that the best way to stave off municipal insolvency would be a statewide restructuring of local aid, especially for schools.
This approach is illogical. Only one Connecticut city is now at risk of bankruptcy, Hartford. State government must act soon to prevent Hartford from going broke but the fiscal outlook of Waterbury, Bridgeport and New Haven is not as dire.
In past years, state government has addressed municipal insolvencies by crafting specific interventions for the city in question. This approach would also make most sense for Hartford's current crisis.
The fiscal challenges of Hartford are remarkable even by national standards. Hartford's junk bond rating is extremely rare for American cities: less than 1 percent of the local governments rated by Moody's Investors Service are pegged at junk. Hartford's poverty rate places it in the top 10 among cities with a population above 100,000.
Add in the highest unemployment and tax rates in Connecticut, escalating deficits and dwindling reserves, and one truly has a perfect financial storm.
But Hartford is not the first Connecticut city to find itself on the brink of insolvency. State government was forced to intervene in Bridgeport in the 1980s and in Waterbury in the 1990s.
To save these cities from bankruptcy (which Bridgeport's mayor pursued, unsuccessfully), the state implemented oversight programs coupled with special financial assistance.
Neither solution was ideal: Few urban policy experts would cite Bridgeport or Waterbury as leading examples of a "comeback city." But nor has either city faced the prospect of bankruptcy since its run-in with state oversight.
Over the past year, Hartford Mayor Luke Bronin and others have played up the notion of a general crisis throughout urban Connecticut. This has a political appeal — Hartford needs all the allies it can get in pushing for, say, an increase in the state's payment in lieu of taxes reimbursement rate for non-taxable property. But it's simply not the case that all cities are in the same condition as Hartford.
State government has to restructure school K-12 funding due to the recent Superior Court ruling in Connecticut Coalition for Justice in Education Funding v. Rell. As a question of fiscal policy, though, more local aid is not justified either on conservative or progressive grounds. It amounts to a bailout of underfunded local retirement benefit programs, which should offend conservatives, and progressives should understand that aid targeted to poor individuals, via safety net programs, is a more efficient way to fight poverty than general budget support for poor cities.
Both Gov. Malloy and Mayor Bronin voiced support for ramped-up oversight for cities in exchange for more local aid. But serious oversight for Hartford would mean the power to reject bad union contracts and city budgets, and conduct a thorough and independent evaluation of municipal operations. Such a regime is much more likely to come through a rescue package custom-tailored for Hartford alone.
To maximize leverage with unions, bankruptcy should not be off the table. So long as unions assume that even the most irresponsible pension promise will be fulfilled, they will continue to push cities to maintain their overly generous benefit programs.
Mayor Bronin has been rightly praised for raising awareness of Hartford's fiscal crisis and repudiating his predecessors' blind faith in the city's ability to somehow grow its way out of its debt and deficit challenges. Sound fiscal policy results when politicians see economic growth as the effect of a healthy budget, not its cause.
At present, though, Hartford city government lacks the political power and policy tools to stabilize its budget. It's therefore up to Malloy and the legislature to secure a brighter fiscal future for the state capital, and that in turn will require appreciating the uniqueness of the city's predicament.
This piece originally appeared in the Hartford Courant
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Stephen Eide is a senior fellow at the Manhattan Institute.
This piece originally appeared in Hartford Courant