Connecticut’s agreement to help pay Hartford’s debts for the next 20 years is expected to improve market confidence in other cities across the state, said Office of Management and Budget Director Ben Barnes.
Barnes, also the chairman of the Municipal Accountability Review Board (MARB), made his remarks during an MARB meeting held today to discuss the finances of Hartford and West Haven – the two Connecticut cities that have so far requested to go under the board’s oversight in exchange for vital state aid.
Two weeks ago, the Nutmeg State formalized a pledge to extend roughly USD 36m per year to its capital city to help cover USD 550m in GO debt over the next two decades. The deal was ratified by Hartford’s city council last week.
“I believe this [the agreement] will serve as a backstop to the credit ramifications for other cities as well,” said Barnes this morning.
“The market has reacted quickly and very positively to the restructuring plan,” said State Treasurer Denise Nappier, who serves as co-chair of the MARB.
Indeed, Moody’s Investor Services yesterday cited the deal as a reason to upgrade Hartford by a whopping thirteen notches, all the way from junk territory at Caa3 to A2. Hartford’s newest rating is just one notch below Connecticut GOs, which rank A1.
The rating turnaround is impressive considering Hartford was flirting with bankruptcy a mere six months ago. Though serving a lessened role, Hartford is still employing legal counsel at Greenberg Traurig and financial counsel at Rothschild & Co., said a source close to the matter.
Both firms—also key players in Puerto Rico’s restructuring—were hired by Hartford last year to help restructure the city’s finances.
Grumbles and mumbles
Despite its apparent market success, Hartford’s bailout hasn’t been well received by everyone in Connecticut.
The mayors of Bridgeport and New Haven, in particular, have stated that the deal “seemingly rewards Hartford for its disastrous financial practices.”
“The two largest cities are being cut and Hartford is receiving a half a billion dollars from the state,” said Bridgeport Mayor Joe Ganim in an interview with Debtwire Municipals. “If that’s prudent financial practice and good governance they should do it for every city and town – otherwise they’re penalizing good management.”
“This is probably the single largest bail out in Connecticut history,” Ganim said. “This is not the usual state guarantee on a municipal issue, or an intercept fund tied to the revenue backing the bonds.”
Market experts have provided mixed reviews, with some arguing that the pledge sets a negative precedent for other distressed credits, and others saying Hartford deserves the aid because of unique circumstances.
When asked about the controversy this morning, Barnes defended the deal, saying Hartford is giving up a great deal of autonomy in order to receive the aid and maintain market access.
“The city is on a relatively short leash,” Barnes said. “[Hartford’s] ability to issue debt and manage their budget is curtailed under this agreement.”
In fact, many mayors came to the MARB asking for a similar deal. But when the MARB explained what such an agreement entails they decided not to take it, Barnes added.
A closer look
With USD 36m in annual aid, the state will be paying the lion’s share of Hartford’s yearly debt service, according to the city’s five-year plan.
The state will start making payments as soon as this month to cover Hartford’s USD 11m GO debt service. The city, however, will continue servicing Hartford Stadium Authority Revenue bonds.
The agreement also eliminates all new debt issuance for Hartford from FY19-FY23 as the city embarks on a pay-go capital expenditure model.
“The state already extends about USD 275m to USD 300m of aid to Hartford, so we’d be guaranteeing about 12.5% of that,” said Barnes.
Hartford has approximately USD 755m in aggregate outstanding debt service for GO bonds. Most of the city’s bond debt is insured: USD 330m by Assured Guaranty, USD 106m by Build America Mutual, USD 45m by Ambac Assurance, and USD 27m by National Public Finance Guarantee.