Hartford, Connecticut, was once called “the richest little city in the country” by the novelist Henry James. But facing financial disaster, the capital is now considering municipal bankruptcy to save itself.
The problem is that potential saviors are few and far between. While Hartford is staring down a deficit of $50 million, the state of Connecticut is facing $3.5 billion shortfall. That means that the legislature is in no position to do for Hartford what it can’t do for itself.
Both the state and its capital have tried to fix the problem by means of a toxic mix of massive tax hikes and deep service cuts. These exacerbate a trend toward a shrinking population, given that people and businesses aren’t willing to stand still when the government continues to raid their pocketbooks.
Take Aetna, which has had its headquarters in Hartford for a century and a half. In May, they announced that they’re looking to relocate to New York City, which would strike a devastating blow to Hartford’s attempts at a revival.
Another cruel irony is that over half of the city’s real estate is taken up by government buildings – structures that pay no property tax. As the Aetnas of the world flee, Hartford is stuck trying to figure out how to squeeze more and more revenue out of the handful of producing assets that remain, while at the same time keeping them happy enough to keep them from leaving, too.
Pension obligations crushing blue states and big cities
Hartford is just the latest in a long line of blue states and big city governments that have piled up pension obligations that they can’t afford to pay.
The state of California has been wrestling with this problem for decades now, and they’ve come up with a number of clever ways to kick the can down the road. Their latest, the introduction of “pension obligation bonds,” sells paper to investors in the hopes that they can make more money by investing that cash than they have to pay out in dividends. That’s not quite as risky as playing odds or evens on a roulette wheel, but it’s not far off.
Yet other municipalities are attempting the same thing. Houston, Texas, has included pension obligation bonds in a $495 million financial referendum being presented to voters in November.
Other states that have looked at pension obligation bonds include Kansas, Pennsylvania, Kentucky, and Colorado.
Matt Fabian, a partner with Municipal Market Analytics, discussed this proposed solution with the Pew Charitable Trusts. “’People like gimmicks,’ he said. ‘It’s a budget gimmick with the math behind it that makes it seem more official.’”
But official or not, it doesn’t seem to be an option for Hartford. The tax base has eroded too far to make any such bonds attractive, and so bankruptcy is looking more and more like the only possible alternative.
(Photo of Connecticut state capitol in Hartford used with permission.)