City of Hartford is facing tough decisions amid financial crisis - WFSB 3 Connecticut

I-Team Investigation

City of Hartford is facing tough decisions amid financial crisis

Posted: Updated:
The I-Team looked into what could happen if Hartford files for bankruptcy (WFSB) The I-Team looked into what could happen if Hartford files for bankruptcy (WFSB)
HARTFORD, CT (WFSB) -

Some outspoken critics of the city of Hartford are pushing for bankruptcy instead of a state bailout or paying off Hartford’s staggering debts with help from its suburban neighbors.

It's no secret that Hartford is facing major financial problems in the coming year.

The shortfall in 2017 is projected to top $30 million, and just this week Hartford Mayor Luke Bronin refused to rule out the possibility of bankruptcy while speaking to the Hartford Courant's editorial board. 

Chris Powell is managing editor of the Manchester Journal Inquirer, and wrote a scathing op-ed this Fall saying, essentially, ‘get on with it.’

He points to the still yet-to-be-completed Dunkin Donuts Park as proof that only the shock of bankruptcy and the resulting clean slate will restart Connecticut’s capital city.

“Hartford just had $50 million and maybe $100 million to spend on a raid on a fellow distressed city, that's what the whole stadium fiasco was, stealing New Britain’s baseball team,” Powell said. “Hartford is full of this nonsense because Hartford is confident that the state will always bail it out, and the only mechanism for holding to account the people in Hartford who are responsible for the city's terrible finances, is bankruptcy.”

“What we're trying to do is give municipalities, give individuals a fresh start by, if not entirely, wiping the slate clean, at least giving them an amount of debt that they can actually afford,” said New York University School of Law Professor Clayton Gillette.

To find out how bankruptcy would work, the Eyewitness News I-Team traveled to New York to see Professor Gillette, an expert on government law. His article on municipal bankruptcy was recently published in the Yale Law Journal. 

He said the first step for Hartford would be to get the governor's okay to file, which is required by state law. 

If they do file, they'd first have to prove insolvency, either that they're actually out of money and unable to pay their bills, or that they've dropped city services to a level that's so poor they can no longer do what they need for their residents.

It's trickier for a city than it is for a private business because cities can always raise taxes, which on paper looks like more income, but at some point it stops helping. Gillette calls it the “revenue hill.”

“After a while, you raise taxes inducing people to leave the jurisdiction and the consequence is you're left with a relatively poor population that's paying little in taxes and you have a cumulative reduction in tax revenues. That's a pretty good indication that you're unable to pay your debts as they become due,” Gillette said.

If the court accepts Hartford’s claim that they are bankrupt, Hartford will then submit a list of all its assets and all its debts.

Different debts would be put in classes by type and the court would have to approve how much Hartford would pay each group. 

Some creditors may get $0.50 on the dollar, others $0.75 for each dollar they're owed. But every creditor, from bondholders to pensioners, would get what Gillette calls a “haircut.”

“The hope of course is that residents are better off as a consequence of this,” Gillette said.

The I-Team visited Central Falls, RI to find out more. The city was forced into bankruptcy in 2011 and is only now starting to recover. 

Mayor James Diossa has unveiled a planned new train station that will connect his residents to Boston by rail for the first time.

He took office after bankruptcy and says if that process is in Hartford’s future, tough times are ahead.

“Bankruptcy is a process that I do not wish on any community. It's a tough pill to swallow for the residents because they're the ones that suffer the most from the mismanagement,” Diossa said.

In Central Falls, those residents faced double digit tax increases for five years in a row.

City services were cut back and city retirees, including police officers and firefighters, saw their pensions slashed by 50 percent.

“Even though we've been a good example of how a community can turn around, we still had a lot of pain  through the process,” Diossa said.

But that pain led to new leadership and a very different Central Falls today.

That is Gillette’s warning…that a city not weighted down by debt is good, but it needs to come with widespread change.  

He worries about how often that happens in a system where a bankruptcy judge can't force a city to do anything they don't want to do.

“My claim is sometimes, frequently, municipalities get into trouble because there is some inherent flaw in the governmental structure,” Gillette said. “If that is the root of the problem, then a short-term fix only delays the return of the problem.”

He said ideas, like cutting down on the number of city council seats to eliminate some pet projects, is one way to lead to long-term change.

While a judge can't force the rewriting of a city charter, he could refuse to let the city out of bankruptcy if he doesn't think their plan goes far enough. 

“So we don't want the municipality to have complete discretion, but at the same time we don't want the courts to be able to run the municipality, because courts are not necessarily good managers of cities, so we want some sort of balance,” Gillette said.

Either way, critics like Chris Powell say anything is better than looking to the state or its neighbors for a handout.

“If you bail the city out and transfer the responsibility to people who are innocent, you just enable more conduct like this,” Powell said.

A big concern is how bankruptcy will it affect the people of Hartford. 

Copyright 2016 WFSB (Meredith Corporation). All rights reserved.