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A Few Connecticut Municipalities Are On Financial Alert

By Gregory B. Hladky

July 24, 2012

San Bernardino, Stockton, and Mammoth Lakes, California. West Haven, East Haven and Jewett City, Connecticut.

What they all have in common are ugly and apparently cure-resistant financial troubles.

What sets them apart — at least so far — is that those three West Coast communities have recently taken the plunge into the bankruptcy cess pits. Connecticut officials insist there's no indication that any city or town in our Land of Steady Habits is now teetering on the cliff edge of bankruptcy.

"At this point, we're not aware of any community that's going to go that route," says Kevin Maloney, spokesman for the Connecticut Conference of Municipalities. He says there are plenty of stressed-out inner cities and older "ring" suburbs that are dealing with ongoing fiscal problems, but that they're all trying to work their way out of their fiscal holes without going to the state or the courts for help.

In fact, Connecticut law forbids any city or town or other municipal creation — like boroughs or fire districts — from declaring bankruptcy unless it first gets the permission of the governor. And no governor in this state wants that kind of embarrassing blotch staining his or her record.

Connecticut's state leaders got hot and bothered after Bridgeport's mayor tried to declare a surprise bankruptcy in 1991. Several other cities also ran into money crunches that required some form of state help.

The trigger for the 1993 bankruptcy ban was the little difficulty encountered in Jewett City, a borough in the town of Griswold, which required a state-backed emergency bailout. The 1.5-square-mile portion of this small eastern Connecticut municipality had defaulted on a $3 million loan, tried to disband its police department and couldn't pay its employees.

According to a legislative report on Jewett City, "The borough's books were in such terrible condition, no one was really certain of its financial condition." After that the state set up an entire system for monitoring the finances of money-troubled cities and towns. Jewett City has been under state supervision and on its watch list ever since.

We happen to be one of 16 states that sets conditions on municipal bankruptcies. Twelve states (including California) give debt-ridden cities and towns free rein in deciding whether to seek the protection of federal bankruptcy courts; and 21 other states have no state laws allowing or forbidding it. Georgia is the only state that strictly outlaws all municipal bankruptcies.

The mini-wave of municipal fiscal implosions in California came over a two-week period in late June and early July. The bankruptcy actions by those three cities now have some Wall Street gurus wondering if there's a new trend in the works among cities pushed to the wall by the Great Recession, big debts and high labor costs.

Scranton, Pa., got itself some unwelcome headlines this month when its mayor cut the pay of all city workers (including himself) down to minimum wage level of $7.25 per hour. Seems the city couldn't pay its bills, couldn't borrow money, and couldn't agree on a plan to raise taxes or cut spending.

Connecticut cities like West Haven, Waterbury and Bridgeport have in the recent past all had to suffer the indignity of state financial control boards being appointed to help straighten out their financial messes.

After it had piled up a $9.8 million deficit, West Haven in 2006 put itself on the watch list of the state Municipal Finance Advisory Commission, which monitors financially troubled municipalities. To little effect. In March of this year, the commission sent a letter to the city insisting that it isn't doing enough to pay off a deficit that's grown to $10.5 million.

"There's really not been any improvement in their financial situation since they voluntarily referred themselves to the commission," says Gian-Carl Casa, a spokesman for the state Office of Policy and Management, which oversees the commission.

"The state and I disagree," says West Haven Mayor John M. Picard. "Do we want to be on this list? No. Will I do what the state wants me to do and borrow more money to pay off this deficit? No." He also rules out tax increases to solve the problem.

Picard insists he's made a priority of trying to pay down the city's other long-term debts and he has a plan to take care of that deficit eventually. "We're probably head and shoulders above a lot of other towns," Picard argues. "I think we're much better off than the state is giving us credit for."

Nancy Rossi is a West Haven city councilwoman who believes some hard lines need to be drawn on spending to get rid of that nasty deficit backlog. One thing she agrees with Picard about is that tax hikes are not the answer. "I think it would create more problems," she says. "We have a lot of unemployed and elderly people… How are they going to pay higher taxes?"

East Haven's budget problems appear to be less dire than West Haven's, according to the commission's records. Of course, that could change drastically if the town gets hammered with huge judgments as a result of civil suits related to alleged racial profiling and police abuse.

As for Jewett City, that's a place that seems to be stuck in a political time warp.

The borough is a self-governing creation left over from the late 1800s, complete with its own "warden" and "burgesses." It's got about 3,200 residents and the state isn't going to take the community off the watch list until those folks agree to become part of the greater Griswold metroplex.

"There's no real financial issue with Jewett City," Casa explains. All the borough needs to do is merge with the town, and the state will give up its oversight duties.

Unfortunately, those stubborn Jewett City types don't want to do that. And the state commission has no power to actually force a city or town to take any sort of politically unpopular step.

All it can do is nag.