Hartford Bankruptcy Looms As CT Gov Admits "We Spent Money On Wrong Things"

Tyler Durden's picture

Connecticut Governor Daniel Malloy is among the country’s least popular governors after forcing through two tax hikes that sent individuals and corporations fleeing from the state. Luckily for the state and its people, Malloy apparently has no interest in sticking around to take the heat when it comes time for the next hike: He has announced that he will not seek a third term.

Connecticut has gone without a budget for two months, and is facing devastating cutbacks in municipal services if one isn't passed soon. But Malloy took time off this week from grappling with legislators to speak with a reporter from Reuters, he offers little insight into what lead to the state’s precarious fiscal situation. Instead, he blames it on overspending on prisons.

"The state invested in the wrong things for a period of time. It allowed its higher educational institutions to suffer while it sought to placate communities with respect to other forms of local reimbursement," Malloy told Reuters during an interview in his office on Thursday.

 

"We built too many prisons, which we're still paying off even while we're closing them," he said. The Democrat took office in 2011 and is not seeking a third term.”

Prisons are only a small part of the state's problem. Choked by outmigration and a debt-service burden that’s the highest in the nation compared with revenues, Connecticut’s fiscal situation is deteriorating rapidly. And after two months without a budget, Reuters reports that, unless lawmakers act soon, the government of one of the wealthiest states in the country will begin cutbacks in education spending and municipal aid as Malloy tries to close an expected $3.5 billion budget shortfall over the coming two years.

Connecticut is one of a handful of US states on the verge of a Greece-style debt-crisis, as it struggles to service some $23 billion in municipal debt, all while lawmakers keep one eye on the state’s unfunded pension liabilities, which have climbed to a terrifying $50 billion, thanks to the generous retirement packages enjoyed by Connecticut state employees.

Back in May, all three of the main rating agencies downgraded the credit rating on the state’s general-obligation bonds, sending the state’s credit risk soaring. Meanwhile, municipal debt for the city of Hartford, Connecticut’s once-proud capital, has been downgraded to junk status. Health-insurance giant Aetna, which was founded in Hartford nearly 200 years ago, recently dealt the city a major blow when it announced plans to relocate its headquarters to New York City, though most of the company’s 6,000 employees will remain in the state.

About a year earlier, General Electric, which had been headquartered in Fairfield, CT for decades, announced it would re-locate to Boston, where it would face a lower tax bill AND access to top-flight talent, who typically prefer to work and live in trendy urban hubs.

After meeting with Millstein & Co, the same firm that tried to help Puerto Rico reorganize its massive debt burden, State Comptroller Denise Nappier proposed a new tax-secured revenue bond program, which she says will lower borrowing costs and boost reserves. The bonds would be issued in lieu of general-obligation bonds, according to Reuters.

But that's a long-term solution. Right now, the state still desperately needs a budget, or its municipalities will be faced with devastating cuts.

“…until lawmakers craft a budget, the state's fiscal uncertainty is causing havoc among municipalities. Some are considering whether to delay the start of school or dip into reserves.

 

And for Hartford, the longer the state goes without a budget, the closer the city comes to a possible bankruptcy filing, said Hartford Mayor Luke Bronin, a 38-year-old former U.S. Treasury official.

 

"The lack of a state budget... makes a liquidity challenge come that much faster," he said.”

By some measures, Connecticut has the worst debt problem in the country.

“It has the most net tax-supported state debt per capita in the nation at $6,505, versus a median of $1,006, according to Moody's Investors Service.

 

It has the highest debt service costs as a portion of state revenues, as well as debt relative to gross domestic product, Moody's said.”

During fiscal 2017, CT spent $2.85 billion servicing debt – the most in seven years.

“The $2.85 billion of principal and interest the state paid on its bonds in fiscal 2017 was the highest in six years, according to preliminary unaudited information from State Treasurer Denise Nappier's office that has not yet been published.”

A crisis at the state level promises to ripple across the state, destabilizing municipalities that have taken state aid for granted for too long.

“Further, the state's budget crunch is threatening its cities including the state capital of Hartford, which is considering bankruptcy due, in part, to its dependence on state aid.

 

Connecticut has borrowed for decades to fund school construction, whereas nearly all other states typically borrow at the local level for those projects.

 

Lack of county governments means some other local costs are picked up by the state, including for all of its detention facilities.”

As with many of its troubled peers, Connecticut’s financial struggles began with the crisis.

“Connecticut has piled on debt to bolster its public pensions, selling $2.3 billion of bonds in April 2008.

 

And again in December 2009, the state sold $916 million of economic recovery notes to close a budget deficit after depleting its rainy day fund during the Great Recession.”

Beyond that, its decline has been hastened by a combination of forces. A deteriorating local economy, coupled with a plunge in hedge fund profits, have strained the state’s already narrow tax base. Meanwhile, high taxes have inspired wealthy hedge fund types to move to states that are more tax-friendly, like Florida.

Despite its desperate financial situation, the state still leads the country in one important metric...

…college basketball championships.
 

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peddling-fiction's picture

Wrong things: coke, hookers and cocktails?

Manthong's picture

 

My only question is “How did they hang in there so long?”.

..same question for the State of California, State of Illinois, City of Chicago….

.. the list goes on.

Creepy_Azz_Crackaah's picture

FREE $HIT FOR EVERYBODY!!!!!

Somebody else's fault!!!

NoDebt's picture

"We spent money on the wrong things"

You will hear this over and over again on every failed governement promise from here out.  That's it.  That's all you're going to get.  What answer would be satisfying to you when the bottom line is "you fucked up, you trusted us"?  Besides, the people who really shafted you are LONG since out of office.  

When the money is gone, nobody is talking too much.  Nobody is explaining shit in detail to you.  They figure the less said, the less you'll complain when the money you were "promised" just doesn't show up in the mailbox the 3rd week every month.

 

WhyDoesItHurtWhen iPee's picture

Pretty sure they lasted so long only because they owed more than they say and lied for so long.

Bailed from CT in 89 to the midwest. 

Give Me Some Truth's picture

Speaking of liars, does anyone know if the state of Illinois's investment bankers have put together their bond offering since that state's latest crisis was allegedly "averted?"

Have they sold all the bonds yet? How big was the offering? Who bought the bonds?

Do follow-up stories ever occur?

One day, the meme is "crisis of all time" with plenty of stories. The next day, "crisis fixed" and no stories for years about what really transpired.

jcaz's picture

What is this "we" shit, Dan?   YOU signed off on all of these expenditures-  YOU own it, and YOU would have taken full credit if it all worked.   Now you're just gonna slink off and blame it on "society"?

Be a man and get out your checkbook.

Vatican_cameo's picture

 

Malloy, you're the same Asshole who claimed "Your hands were tied" and couldn't touch the State workers or their ASTRONOMICAL PENSIONS AND RETIREMENT PACKAGES.  First chance you get, you pass a law that states they can't be touched until 2027 (another ten years).  The effects of your stupidity will be felt long after the State of CT collapses.

marathonman's picture

Thinking outside the box here, maybe they could try the state bank solution and start a Bank of Conneticut for government operations.  Pay yourself interest and reduce the tax burden.  Shaft the Squid.  Seems to be working in North Dakota.  But they should definately not miss the chance to eliminate government employees unions, government pensions, and scaling back the police force and letting people just live their lives.  

 

Probably never happen so it looks like Bankrupcy court a la Detroit.

EddieLomax's picture

Reminds me of what Enoch Powell said about the national plan.

Three things we know about a nationaal plan, first its conclusions will be wrong, dead wrong.  Secondly it will do the maximum damage to the country because it will be applied nationally.  And third it will be continued long after it has been proven a failure because of all plans the national plan is the most inflexible, and of all people politicians are the slowest to admit their mistakes.

Same deal here, centralised planning is based on faulty assumptions from experts that are either out of date, wrong or both.  It hurts everyone by ruining their finances, and only when the politician is leaving office are they honest that ithey made a complete mess of things.

Give Me Some Truth's picture

Re: "National Plans"

Yes, given enough time, national plans almost always produce the opposite result of what was touted by the plan's proponents and architects. I've dubbed it "The Law of Opposite Effects." 

A plan to "improve education" will make it worse.

The plans to protect pensions of retirees will, given enough time, destroy pensions of retirees.

Plans to eradicate terrorism and "terrorists" will produce more terrorism and terrorists.

I'm actually betting on my theory/law. I am convinced the government has a plan to cap or suppress prices for gold and silver (to protect the dollar and the printing press). Because I believe such a central plan exist, I have a very high degree of confidence that the prices of gold and silver will go sky-high at some point in my lifetime. The ultimate result we will get will be the opposite of what the planners hoped to achieve. 

 

WorkingFool's picture

Just a guess but all the bankrupt DemoRAT run shit hole hole cities are always looking to be bailed out by the state. It follows that all the bankrupt states are looking to the federal government for a bail out. And let's not overlook Puerto Rico. That plan was disrupted by Mr. Trump's election.

Give Me Some Truth's picture

Puerto Rico was bailed out ... or will be.

What's the other possibility? That they magically fixed everything on their own?

Just Another Boob's picture

"I've dubbed it 'The Law of Opposite Effects.' "

This principle already has a name.  It is called "The bounty on rats principle".

It's very simple to understand:  Put a bounty on rats and people will start raising rats.

Sometimes it is more eloquent to express a general principle in a specific context.  I think they call it parables or metaphores or something like that.

But what does a boob know anyway?

Give Me Some Truth's picture

The principle I see stated more often is "The Law of Unintended Consequences."

Restated: The "intended consequences" don't always happen, but a lot of other consequences that were unancticipated do.

I believe in this "law" too (mostly). Implied in the law is the idea that plan architects actually "intended" to produce a certain result. For example, that legislation to improve "education" will actually do this.

However, I don't give some of these people credit for being that honest. I think many of them could give a rat's ass if education is "improved" or not. It's just a cover for what they really want (more union teaching jobs, more administrators, more bureaucrats, more student loans, whatever the case may be). That is, some "do-gooders" who insist we pass such and such law probably KNOW said law could very possibly make things worse. They don't care. Saying the inevitable consequences were "unintended" gives these people too much credit for being sincere.

I do like the rat bounty principle though. I'd never heard it. Maybe I have heard a variation of it. I have heard the anecdote that if you want to help kill off a species or put a given species on a "hit list" simply put it on the protected or endangered list. I think there was some woodpecker in our parts that was a prime example. 'Tis said that if any land owner happens to stumble upon that woodpecker, his days are short-lived.  He really has nothing against the poor woodpecker. But he does fear the government taking over his property.

Just Another Boob's picture

They are very similar, but "results different than intended" isn't quite the same, nor as impactful as "results opposite of intended".

I did a search on "bounty on rats" and found another name for it:  en.wikipedia.org/wiki/Cobra_effect

What you describe is better labelled as "ostensible reasons and ulterior motivations", a mainstay of politicians everywhere for all time.  Actually, it applies to policy makers in general.

But what does a boob know anyway?

Bwana's picture

You obviously don't understand how environmental legislation works. In the 90s I was an employee who worked on a project that was shut down because of the Stevens Kangaroo Rat. The Stevens Kangaroo Rat is a threatened species (ya right) that is identical to the regular kangaroo rat except the septum in its nose is slightly shorter. To tell the difference they have to kill the rat and disect its head. Whwen the project was shut down it put over 100 people out of work and caused the collapse of Home savings and Loan who had done the construction financing. The project was shut down because the "expert" on the Stevens Kangaroo Rat stated that although there were no SKRs on the property "his observations" convinced him that the rats on adjacent properties were "stressed" because of the noise and vibrations of the heavy equipment. No rats were sacrifised to prove they were SKRs.

As asupervisor I would check the construction site for damage, stolen vehicles, off roaders and any other thing that would degrade the work that hd been done. Once when I was there I ran into the jerk who had caused all the trouble. We talked for a while and he explained the whole scam. If someone graduates from college with a degree in envoronmental science he or she can look forward to a minimum wage job plus about $2 per hour. While working the recent graduate looks for a sub-species of a common critter. Almost every critter in nature has sub species that are different due to inbreeding caused by isolation such as being in a different valley. The young person applies for a grant to study the sub-species provided nobody else is already studying the critter. Then another and another grant is applied for and reports are witten. After at least 5 to 7 papers are published the the young person draws the conclusion that the sub-species is "threatened" because its habitat and range is limited. They then apply for a massive grant for a major study to see if the critter is not just threatened but "endangered". The conclusion is always the same and it becomes and endangered species.

The minimum wage +$2 young person is now the worlds expert on this sub species and now must sign off on any project prior to any construction starting. The going rate for the study this person would do was $125 per hour and normally would cost $20,000 to $500,000 to complete depending upon the size of the project. This is why no matter where you want to build there is an endangered critter, insect, plant which is in all actuallity a sub-species of a common critter, insect or plant. To go ahead with any project you must pay the person who became the expert on this endangered species (all bullshit) and got very wealthy in the process.

The SKRs on the project were to be trapped and moved to other locations where they would get a rock pile on top of some freshly dug and compacted soil (easy to dig) this would be fenced off and a minimum wage +$2 graduate would stay with the rat for at least two weeks to see that it was thriving in its new habitat.  The fence was removed the rat was on its own and probably was a nice meal for another endangered species, the Mojave Green rattlesnake. Unfortunately in the entire desert area there was no more room to transplant the rats so a deal was made for the developer to donate $2,000 for each rat on or adjacent to the property. That money went into the trust fund for the SKRs and the developer could continue with the project after a 1.5 year delay which took out a Savings and Loan institution and cost the jobs of over 100 workers.

Buck Johnson's picture

This is going to hit alot of public employees in the near future, alot of them.

 

 

Give Me Some Truth's picture

Re: This is going to hit a lot of public employees in the future ...

You have to be right. This issue is at the top of my "Black Swan" list. 

Saying this, I recognize that the men behind the curtain also recognize this. They have a plan to deal with it. That plan is simple: 

1) Don't let an actual default occur. Nor a state actually declare bankrupcy.

2) Pass whatever budget deals legislators have to pass to placate Moody's and Standard & Poors (the bond rating agencies)

3) Make sure said rating agencies don't classify any state's credit rating as "junk."

4) Issue as many bonds as needed.

5) Make sure "someone" buys said bonds.

Note: No. 5 is where the Feds and the Powers that Be come in. "Someone" working with their team will buy the bonds. Crisis averted. Can can still be kicked.

Summary: The Feds can actually print money and sell bonds. States can only sell bonds when they "come up short." But as long as they can sell the bonds, what's the big deal? No reason for any fuss ...

what happened's picture

 

The only thing important to Connecticut is the union because they keep the Democratic machine going.  House speaker  Joe Aresimowicz was a majority leader until recently and a former union boss.  They just passed a concessions package claiming a savings of 24 Billion over 20 years, but they are really continuing to kick the can down the road.  The quiet and complicit corruption that envelops this state only serves government, their employees and union interests.   The people in the comments sections of every major Connecticut newspaper are screaming for relief that will never come.  It is a dangerous and forboding place, oh and the Judges want a raise.

turnoffthewater's picture

I never have seen any value in govt. Just a black hole with a bunch of rats and cockroaches

Shinebama's picture

Yup, exactly the reason I bailed on IL and Shit Congo last month, where I lived for many years and planned to retire. Politicians lie, but the numbers don't. (Well, the actuaries do by fudging the numbers with unachievable discount rates.)

SoDamnMad's picture

Make a Newtown movie. I am sure the big stars in Hollywood will give cut rates to produce it and we can just bend the truth a bit and leave out a lot of messy facts.  it should gross a couple hundred million. That will help the state budget.  Now where is that medical examiner. Too bad Burl Ives isn't alive to play him. Burl could hum a tune from the theme music.

GUS100CORRINA's picture

Trillions!!!!

These charts are unbelievable!

This must be the BUSH/OBAMA ECONOMIC PLAN!!!

I guess America is finally awaking from its FANTASY SLUMBER to a REAL, HONEST TO GOODNESS NIGHTMARE!!

yogibear's picture

"We built too many prisons, which we're still paying off even while we're closing them," he said.

What are you doing that for? Your libtard brothers in Chitcago can lease them from you.

Their murdering groups of people daily in Chitcago.

Give Me Some Truth's picture

Re: "Chicago can lease Connecticut's prisons"

Good idea. And Illinois is flush with "money" now, or soon will be. I don't know the status of that bond issue that solved their "crisis." I assume "someone" bought all those bonds. (Why anyone would actually do this, I cannot fathom ... Well, maybe I can. Perhaps These "someones" who always buy the bonds of desperate states are the same entitities who are routinely gifted money from the Fed. I think the way it might work is: "Hey, if you are going to keep getting this free money from us you got to help us bail out Illinois and their pensioners, okay? We can't have any states defaulting on their previous debt, so we need someone to buy the new debt. It's part of our Black Swan Prevention Program ... but you know all this already; you understand how things work around here ...")

Anyway - Surprise! Surprise! - Illinois once again has enough fiat computer digits to kick the can for at least another year or two. And it does have a massive crime problem, at least in its biggest city. So Illinois must need a lot more prison space ... and, Connecticut has this in spades. Prisons provide jobs (tax payers) and are customers of a lot of vendors. You can bus inmates anywhere can't you? 

Your proposal is a "win-win."

 

mike_king's picture

Default on public pensions for parasites! Burn the cities with fire!

gilhgvc's picture

GOOD and every damn resident deserves the pain after voting for liberal after liberal. I hope they all stand in bread lines

Nolde Huruska's picture

Nothing a soda tax can't fix.

SantaClaws's picture

Amazing that Malloy cites every spending error except for the most obvious and outrageous:  pensions and healthcare benefits for public employees like himself.  Every public official in Connecticut and elsewhere apparently must take a secret oath to agree to increase all public pension benefits beyond any and all reason, obstruct every effort to reduce them, and absolutely never discuss the problem honestly.

totenkopf88's picture

Sure- blame the prisons- but not the cops, firefighters, teachers, muni workers etc, making $100K+/year and then getting that much-or more- in retirement 

vato poco's picture

JFK's gift that just keeps on giving. it's also why the cops are trigger-happy cowboys wo know they won't lose their jobs no matter what

with any luck at all, every last one of em is sucking cocks in hell

 

yellowsub's picture

That's because he's banking on it after leaving office.

To speak out against it is political suicide and is why the problem compounds ever year.  The moment you make them pay 1% more or reduce benefits by a few percent you'll have a lawsuit.  

 

EddieLomax's picture

There are only two ways this pension crises can end, either they hose the retirees and leave them facing financial difficultes in later life.  Or they can print money to cover it and hose the dollar, guessing that we will see this happen since the QE genie is out of the bottle anyway, so expect high inflation in the years to come.

Give Me Some Truth's picture

The amount of "money" that is being printed and borrowed should boggle everyone's mind and scare the crap out of everyone. Note I wrote "should ..."

what happened's picture

 

One school district in particular had major civil rights violations and when caught they scream "save the state".

gregga777's picture

"By some measures, Connecticut has the worst debt problem in the country."

“It has the most net tax-supported state debt per capita in the nation at $6,505, versus a median of $1,006, according to Moody's Investors Service.

It has the highest debt service costs as a portion of state revenues, as well as debt relative to gross domestic product, Moody's said.”

But, the Anglo-Zionist FAKE NEWS Media tells us that Russians and White Supremecists are the greatest threats to the American Police State. Gee, why would they lie? /s

SHEEPFUKKER's picture

"We built too many prisons". Please feel free to check yourself into one Mr. Governor.

Drop-Hammer's picture

Too many prisons?  Must be a lot of niggers in Connecticut.

Ben A Drill's picture

I blame Puerto Rico.

ToSoft4Truth's picture

Consider those high school stadiums in 'conservative' Texas.

 

$60,000,000 for one. 

We're doomed.

TBT or not TBT's picture

Waterloo was won on the playing field of Eaton. 

totenkopf88's picture

Actually,  heavy rain the night before the battle was the determinant factor

dark pools of soros's picture

no worries all the EBT crew will support the state when all else fails

Scuba Steve's picture

Those are high-priced ghettos in Hartford ... best of everything a homey would need.