For Immediate Release: 1/18/2016
Contact: Zachary Janowski
Mobile: (860) 384-5777
Email: Zach@YankeeInstitute.org

Failure threatens Connecticut’s Broken Cities
New study diagnoses problems shared by Bridgeport, Hartford, New Haven and Waterbury

January 18 – The fiscal challenges threatening Connecticut and four of its major cities are striking. In a new study published by the Manhattan Institute and Yankee Institute, Manhattan Institute Senior Fellow Stephen D. Eide diagnoses the challenges facing Bridgeport, Hartford, New Haven and Waterbury.

[Download the study, Connecticut’s Broken Cities: Laying the conditions for growth in poor urban communities.]

“Taxpayers are paying more and getting less,” Eide says in the study. He points to other poor and economically depressed-cities that don’t share the same fiscal woes.

All four of the broken cities have fewer city workers than a decade ago; higher mill rates; no savings; and concentrated poverty.

Together, the broken cities are home to half a million people or 14 percent of Connecticut’s population. Poverty is rising while population is falling. Since 1970, the cities lost nearly 48,000 residents, while the number of people in poverty grew by 55,000. That’s a 72 percent increase in poverty and a 8.5 percent decline in population.

The upcoming state budget debate will include proposals to shift more money to cities. Eide’s diagnosis suggests that additional state funding won’t solve the fiscal problems of the broken cities. The study points to labor reform as a more viable solution.

Don’t just raise revenue. Reform spending.

Eide explains how benefits for city workers are crowding out other services. If Hartford and New Haven pensions costs had risen in line with taxes, they would have millions more to spend each year: $26.3 million for Hartford; $10.5 million for New Haven. Eide discovered that 40 percent of Waterbury taxes pay for retirement liabilities.

“As New Haven’s headcount has declined by 40 percent, its spending on retirement and medical benefits has increased by 45 percent on an inflation adjusted-basis,” Eide says in the report.

The average Connecticut municipality gets 22 percent of its revenue from the state. The broken cities get 47 percent.

“Robust staffing levels alone do not ensure a competent municipal government. But it takes an extremely talented manager to reduce crime and improve test scores while also slashing the budget,” Eide says in the study.

“Rather than spreading failure from Connecticut’s cities, lawmakers should pass straightforward labor reforms. Municipalities of all sizes can prosper together when taxpayers can control local spending,” said Carol Platt Liebau, president of the Yankee Institute. “We all want safe, welcoming cities that provide jobs and thriving neighborhoods. To get there, we need labor reforms that allow cities – and all local governments – to provide better services at a good value.”

Hartford is the most broken of the broken cities. Eide predicts the city will need either a state bailout or bankruptcy protection. The main disadvantages of bankruptcy are “uncertainty and costs.” Connecticut is a “conditional authorization” state; the governor must approve any city bankruptcy. If Hartford declares bankruptcy investors could demand higher interest payments from governments across the state.

According to Eide, local officials often get distracted by trying to promote economic growth through government programs. He says local officials should instead focus on controlling costs – where they have more control – because lower costs and better services will spur organic growth.

Overwhelming debt

Each of the broken cities is still paying for past spending decisions. Excessive promises to city employees and borrowing have left those relying on municipal payments at risk financially.

  • The broken cities have per capita debt of more than $4,000, which far exceeds the state average of $2,324.
  • Hartford’s debt service payments will nearly double between 2016 and 2018. And then they will increase by a third again by 2021.
  • New Haven’s debt service costs more than doubled between 2002 and 2009.
  • Hartford’s debt per capita is up 78 percent since 2006. Waterbury’s is up 135 percent.
  • Hartford is in the “wrong” 1 percent. “Less than one percent of the local governments rated by Moody’s are below-investment grade.”
  • New Haven’s debt is only three downgrades away from junk.
  • New Haven owes more than $650 million in pension debt. That’s $4,700 per resident. The municipal employee fund is only 36.3 percent funded using the city’s own generous assumptions.

Connecticut’s Broken Cities makes a persuasive argument for the labor reforms that will help city and state leaders balance their budgets.

The Hartford-based Yankee Institute for Public Policy works to transform Connecticut into a place where everyone is free to succeed.

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