Connecticut Extends Dubious Debt Distinction in Hartford Rescue

(Bloomberg) -- One of the nation’s most indebted states could see what it owes get even larger under a plan to rescue its beleaguered capital from bankruptcy.

Connecticut is planning to cover the payments on $540 million of Hartford’s general-obligation debt as part of an agreement it reached with the city. Hartford, a 123,000-resident city whose government has struggled to close budget shortfalls and revive its economy, owes almost $755 million in principal and interest through 2036.

That step adds to the financial burdens on Connecticut, which has been contending with its chronic deficits. At $6,505, Connecticut’s net tax-supported debt per capita was the highest of any state, according to a Moody’s Investors Service report last year. The figure has grown from $5,185 in Moody’s 2013 report.

Connecticut Extends Dubious Debt Distinction in Hartford Rescue

The plan for Connecticut to pick up the debt payments was part of the lifeline the state extended to the city when it enacted the budget last year. Those details are just now being finalized and are set to be reviewed by the city council Monday.

Mayor Luke Bronin said it is important that the city council sign off on the arrangement before a debt payment comes due on April 1.

“Over the past two years, we’ve made deep reductions in spending, negotiated dramatic savings with labor, and partnered with our biggest employers, and this agreement with the state is the last step to put the city on a more sustainable path,” Bronin said in a statement.

The Hartford payments aren’t the only new liabilities Connecticut’s taking on. It’s selling $250 million in bonds for new projects next week, though it’s also refinancing some debt to cut costs. But investors have been extracting steeper penalties from Connecticut: the yield on its 10-year bonds are around 3.44 percent, or about 0.92 percentage point more than top-rated debt, the widest gap since July, according to data compiled by Bloomberg.

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