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Manhattan Institute

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Special Report: Connecticut's Broken Cities

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Special Report: Connecticut's Broken Cities

January 18, 2017
Urban PolicyTax & BudgetPublic Sector Reform

Abstract

This report was written by MI senior fellow Stephen D. Eide and published by the Yankee Institute, a state-based think tank dedicated to advancing free-market, limited-government solutions in Connecticut.

Read the full report on their website or download below.

Connecticut’s major poor cities now face significant fiscal challenges. The budgets of Bridgeport, Hartford, New Haven, and Waterbury are weaker than they were prior to the 2008-9 recession. To varying degrees, retirement benefit costs have escalated, reserves have been depleted and services slashed. Employee headcounts are down even while tax rates are on the rise. Taxpayers are paying more but getting less, and some cities are nearing insolvency.

This report will analyze these four cities’ fiscal conditions and consider what the most appropriate solutions should be.

Key Findings

  • Connecticut’s four major poor cities owe about $4.8 billion in retirement-benefit related debt, according to official estimates. Costs associated with servicing this debt are rising more rapidly than revenues, creating a “crowd out” effect in budgets. Had Hartford and New Haven’s pension costs risen at the same rate as property tax revenues over the decade prior, they would have had about $36.8 million in additional revenues to devote to basic municipal services in FY15.
  • All four spend heavily on health insurance for retired workers, a benefit that has been almost completely phased out in private industry. The four cities’ annual expense on retiree medical is $120 million and the unfunded liability is $2.7 billion
  • Along with retirement benefit costs, these cities’ fiscal flexibility is currently restricted for four additional reasons. First, all four now employ fewer workers than before the last recession. Declining headcounts raise questions about service quality levels and the practicality of further spending reductions. It is much easier to eliminate positions than to reduce salaries and/ or benefits.
  • Second, their mill rates rank among the highest in the state, and have been rising in recent years.
  • Third, all four have reduced their reserves and/ or increased their bonded debt burden over the last decade.
  • Fourth, poverty is highly concentrated in these cities. Since 1970, their populations have declined and the number of people living in poverty has risen. The impoverished, weak character of their local economies means both that they have limited ability to absorb tax increases and are unlikely to grow their way out of their debt struggles.
  • Though all four cities are fiscally weak, Hartford stands out for its high mill and poverty rates, and its escalating deficits.

READ FULL REPORT

______________________

Stephen Eide is a senior fellow at the Manhattan Institute.

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