In a report issued Thursday, the ratings agency’s analysts said Hartford, Connecticut’s once-proud capital city, could default on its debt as soon as next month, forcing the capital of the country’s wealthiest state (on a per capita basis) into bankruptcy.
If the city doesn’t change course (and given its shrinking tax base and the departure last year of Aetna, a major insurance company that was founded in Hartford and had located its headquarters in the city for more than 150 years, reforms appear unlikely), receive a state bailout or strike some kind of deal with its creditors, Moody’s says lenders can expect it to run up annual deficits in excess of $60 million through the next 20 years.
Moody’s (along with its rivals Fitch and Standard & Poor’s) downgraded Hartford’s credit rating on Sept. 26 to Caa3 from Caa1, reflecting a view that creditors would only manage to recoup between 60% and 80% of their principal should Hartford default.
Of course, there’s no guarantee that the state government will be there to support troubled Hartford. Four months into the fiscal year, Connecticut is the only state in the country that hasn’t passed a budget as lawmakers the state’s lame-duck Democratic Gov. Dannel Malloy joust over how to close a $3.5 billion two-year budget deficit. In a reflection of the state’s broader fiscal crisis (as is the case in many US states), Moody’s says Hartford’s public employee unions represent a “significant constraint” to cutting the city’s deficit, as the Hartford Courant points out.
Moody’s called Hartford’s unions “a constraint” to trimming the city’s deficit. “Contractual salary increases and employee benefits are significant contributors to the city’s long term structural imbalance,” the report read. Unions would have to make “significant concessions” for Hartford to narrow those deficits, it said.
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