Hartford, CT, With Its Finances in Disarray, Veers Toward Bankruptcy

The problems in Hartford are similar to some other cities across the United States that have sought relief through bankruptcy: its tax base and population have shrunk and its pension obligations and debts have piled up. City officials, who are confronting a budget deficit approaching $50 million, have already made deep cuts in services, sought concessions from labor unions representing public employees and have taken steps, such as hiring lawyers, to position the city to be able to file for bankruptcy.

At the same time, Hartford has looked to the state for help, only to find that financial situation is also in disarray. The state, which has a deficit of about $3.5 billion, started the fiscal year on July 1 without a budget after months of wrangling in the State Legislature and a resolution could be weeks away.

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Connecticut has the greatest degree of income inequality of any state, according to Daphne A. Kenyon, an economist who studies local taxation at the Lincoln Institute of Land Policy, a research institute in Cambridge, Mass. That, she said, has translated into an extreme in "haves" and "have-nots" among its municipalities.

Cities and towns in Connecticut rely to an unusual degree on property taxes to finance their operations, a system that works well for more affluent communities, like Greenwich and Darien. But it is proving disastrous for a city like Hartford, which has one of the highest property tax rates in the state, but still cannot raise enough money to pay for basic government operations. Last year, state grants and assistance covered about half of the city's $566 million budget.

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Beyond the city's core, blocks are dotted with blighted buildings, some appearing to be overtaken by nature. Residents complain of parks that are poorly maintained and have expressed concern over violent crime. The Police Department is significantly understaffed, officials said, having lost more than 100 officers in recent years. The city's library system recently announced the closure of three of its branches and other cuts have threatened community events, like parades and festivals.

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Hartford also has a fundamental tax problem: It is home to government buildings and other properties it has no power to tax, making up just over half the real estate in the city. Connecticut accounts for that by promising to compensate the capital for the forgone property taxes, but in practice, the flow of money has been unreliable. The mayor described the city as being in a situation that forces an urban center to operate with a tax base similar to that of a suburb. "And it's a structure not built to work," Mr. Bronin said.

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In July, Moody's Investors Service downgraded Hartford's debt after the city disclosed that it had hired a law firm to advise it on a possible debt restructuring. Both Moody's and Standard & Poor's now rate Hartford's debt in the junk range, signaling a greater likelihood of some sort of default on bond payments.... Some contend that filing for bankruptcy is inevitable and is the city's best option. But there is also a pervasive sense in the city, especially among public employee labor unions, that bankruptcy could have devastating consequences and should be vigorously avoided.

... Hartford would be the first state capital to file under Chapter 9 of the federal bankruptcy code. (Harrisburg, the Pennsylvania capital, tried to declare bankruptcy in 2011, but state lawmakers there passed a bill to thwart the case from proceeding.)