The city of Hartford, Connecticut has hired bankruptcy lawyers Greenberg Traurig LLP to help it explore filing for Chapter 9 bankruptcy. Based in Miami, Greenberg Traurig is an international law firm with expertise in financial restructuring.
Chapter 9 provides cities and towns with financial protection from creditors, allowing the municipality to resolve its outstanding debt.
Connecticut’s fiscal year ended on June 30 and the state has no new budget and no agreement for a short-term deal. This has left Hartford with a $65.0-million deficit and on the brink of bankruptcy.
“We think it is responsible to have the advice and counsel of a respected restructuring firm,” Hartford Mayor Luke Bronin said. “Like everybody else in Connecticut, I certainly hoped the legislature would take some action that would bring clarity to the situation before the beginning of the fiscal year.”
The hiring of a bankruptcy cannot be a big surprise. The mayor has been warning for months that if the city failed to get the help it needs, it could look to Chapter 9 protection. While Bronin hasn’t formally decided whether or not to file yet, he confirmed that Greenberg Traurig would be working with the city to “examine the full range of restructuring options.”
“One important element of any municipal restructuring is the restructuring of debt,” he added. “They will be beginning the process of reaching out to bond holders to initiate discussion about potential debt restructuring.”
Hartford is bracing for another round of cash flow troubles this fall, with a shortfall of $7.0 million in November and $39.2 million the following month. In June, the city turned to short-term borrowing to help it reach the end of its fiscal year.
City council members are not happy about the possibility of filing Chapter 9. Council President Thomas Clark II said he was open to financial restructuring, but remained against bankruptcy.
“Finding a way to bring our bond holders to the table to have a conversation about restructuring – I think that is needed,” Clarke II said. “But if there is an effort to file for bankruptcy, there is not going to be support from a majority of the council.”
This could lead to a show down of strength. Clark II said the council could hire its own attorney to fight the Chapter 9 filing.
Even though Connecticut is considered to be one of the wealthiest states in the nation, it is mired in debt, a weak economy, and a loss of tax dollars.
Unless state finances are adjusted, Connecticut is expected to run a deficit in 2017-2018 of $2.3 billion, a shortfall of 12%. The potential gap in 2018-2019 rises to $2.8 billion, or 14%.
“2018-2019 Biennial Budget,” Connecticut Government, June 30, 2017.
“Executive Order Resource Allocation Plan,” Connecticut Government, June 30, 2017.
“Hartford Hires Bankruptcy Lawyer As City Officials Weigh Options,” July 6, 2017.