Connecticut Budget Saves Hartford Bankruptcy, Leaves Out Small Towns

Connecticut Budget Saves Hartford Bankruptcy, Leaves Out Small Towns
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Connecticut Budget Passed But Small Towns Left Reeling

The Connecticut budget has finally been passed but many of the state’s small towns are not so happy. The risk of budget cuts is still looming large as state capital Hartford and other big cities stand ahead of these small towns to claim bigger shares in the state budget.

Hartford’s mayor may have heaved a sigh of relief as the city managed to thwart its bankruptcy at the last minute. However, officials of small towns in Connecticut are still losing their sleep. 

As part of the $41.0-billion budget approved by Connecticut Legislators, Hartford would be receiving $40.0 million to avoid a government shutdown and its much-feared bankruptcy. On the contrary, small towns will be losing about $30.0 million in state funding under the current budget.

These towns now face a serious dilemma—they must either cut spending or increase taxes to cover the funding shortfall. Many of these towns had already turned to spending cuts and tax hikes, while the budget was being repeatedly delayed.

Small Connecticut Towns Facing Debt Defaults, Ratings Cuts

Meanwhile, there are some towns that have been pushed against the wall. Amongst these are towns so broke that they were even finding it hard to replenish their office supplies through the state’s budget crisis.

These towns have no more room to resort to service cuts or tax hikes and will eventually run out of money. It is feared that, once that happens, these towns will likely default on their debt or general obligation bonds.

In that event, not only will they lose their credit ratings, they will also face higher future costs of borrowing. In other words, these poor towns will inevitably get sucked into the vicious cycle of debt repayments financed by more expensive debt.

Just earlier this month when the budget crisis peaked, ratings agency Moody’s Corporation (NYSE:MCO) slashed its outlook to negative for 25 Connecticut towns and three school districts. Another 26 towns and three school districts fell under review for possible downgrades.

It is also feared that local governments in these towns may face mass layoffs. Connecticut municipalities facing budget shortfalls and having no room to raise additional revenue will have no choice but to cut back their expenses, starting with payrolls.

So while Hartford may be out of its financial troubles, for now, these small towns could continue to suffer for another year, possibly until the next budget.

 

Source

Connecticut’s Budget Solution: State Capital Gets More, Small Towns Get Less,” The Wall Street Journal, October 30, 2017.

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