Riley: Connecticut Municipalities in Scramble With Hartford & Moody’s
Tuesday, October 24, 2017
$3.5 Billion of outstanding debt.
Connecticut has been operating without a budget since the beginning of the current Fiscal year July 1, 2017. Without a budget, expenditures are controlled by the Governor through the use of an executive order.
Under the current executive order, state funding of local governments is nearly $1 billion less than last fiscal year. Moody’s mentions localities in Connecticut have unlimited property tax “flexibility” which makes bondholders happy but not taxpayers.
Hartford is at the center of the storm where the Moody’s note reads, “Hartford is likely to default on its debt as early as November without additional concessions from the State of Connecticut, bondholders and labor unions.” The report further states, “The State can fully fund its PILOT payments, bondholders can accept a haircut or less returns or a longer payout and or Unions can offer concessions”
Lower taxes accompany growth, higher taxes retard growth.
Like Puerto Rico, Hartford has no other realistic solutions. Half of Hartford’s property is tax exempt. Now where have Rhode Islanders heard that before? (Hint: It's where the Grays used to play).
Hartford taxpayers pay the highest mill rate in the state and as some politicians have learned higher taxes erode economic growth prospects. The effect of higher property taxes in Providence is clear as the City slowly chokes. Its amazing Elorza and Raimondo do not get that lower taxes accompany growth and higher taxes retard growth.
According to an editorial in the Hartford Courant, Hartford’s key financial problem is its fixed costs – the bills it is obligated to pay in upcoming years.
- Debt Service (interest on loans taken years ago)
- Benefits due to retirees (promises inked long ago for work already performed)
- Current cost of labor- teachers, police, fire politicians and staffers
Moody’s projects the city will fall $60 to $80 million short of its obligations. Approximately $618 million will have to be paid in debt service over the next 19 years and $6.6 BILLION will have to be paid in labor costs for salaries, benefits, (insurance and pensions).
The Courant concludes labor costs will eventually choke the city to death and Moody’s estimates that Hartford needs about $840 million over that time to keep Hartford from running deficits (which, by the way, are unlawful).
Moody’s makes an additional point about “binding arbitration."
“The state could provide non-financial support by adopting legislation to relieve municipalities of the current binding arbitration process.” In Rhode Island, some backward thinking-Democrats have consistently and irresponsibly proposed the opposite
So far, unions in Connecticut have their back up and are prepared to fight. If they were to follow Providence and Rhode Island, the Connecticut unions can then convince vote hungry assembly members that they can assuage bondholders and thus Moody’s, by giving GO bondholders first lien on taxes. This will then force State Taxpayers to bail out Hartford. Labor friendly legislators would obviously then be well rewarded for such legislation and produce targeted bailouts as in Central Falls case in Rhode Island and of course re-election. Now wouldn’t that be Raimondo like? Then Luke Bronin can laugh at Bankruptcy just like Jorge Elorza does. The joke will be on State Taxpayers. Hah, Hah!!!
Related Slideshow: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:
1. An established minimum retirment age of 59 for all state and municipal employees.
2. Elimination of cost-of-living increases.
3. Conversion of new hires into a 401(k) style plan.
See WPRI's coverage of Carcieri's proposal here.
Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions.
Read the NCSL report here
(Photo: FutUndBeidl, Flickr)
Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.
"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo
Check out Wall Street Journal's coverage here.
Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot.
Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.
Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.
Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.
"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)
Read GoLocalProv's analysis of the report here.
Read the Truth in Numbers report here.
Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.
“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee
Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.
“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)
Read more from the firefighters' battle with Raimondo here.
Check out the New York Times' take on RI's pension crisis here.
November 17, 2011
The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.
Read more from GoLocalProv here.
November 18, 2011
Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.
Read about how Rhode Islanders react to RIRSA here.
Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms. The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.
Read about the pension workshop here.
Read Raimondo's feature in Institutional Investor here.
March - April 2012
Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.
December 5, 2012
Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package. In response, Chafee issues a statement supporting the negotiations.
Read more about Raimondo's opposition here.
Read about Chafee's statement http://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here.
Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.
Read about Raimondo's discussion of distressed municipalities here.
The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.
"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)
Read GoLocalProv's coverage of the State Pension Fund's losses here.
Read Ted Seidle's criticism of Raimondo in Forbes.
Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.
Read GoLocalProv's investigation into the rising pension costs here.
Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform.
Read Taibbi's article in Rolling Stone.
Read GoLocalProv's response to Taibbi here.
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