City leaders will begin formally exploring a course for bankruptcy, with the hiring Thursday of an international law firm that has expertise in financial restructuring.
Hartford has hired Greenberg Traurig to navigate the complex system of Chapter 9 – which protects fiscally strapped cities and towns – and to study alternatives that could pull the city from the brink of fiscal collapse.
"We think it is responsible to have the advice and counsel of a respected restructuring firm," 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 interim spending plan that's in place in the absence of a state budget has profound effects on all communities in Connecticut, including Hartford, where under that plan we would lose tens of millions of dollars in the coming months," he said.
The fiscal year ended last week with no agreement on a new state budget and no consensus on even a short-term plan. That's left Hartford, which has asked for tens of millions of dollars more in state aid to close a $65 million budget gap, edging closer to bankruptcy.
Bronin has warned for months that if the city didn't get the assistance it needed, it could seek Chapter 9 protection.
Bronin said Thursday that he hasn't yet decided whether he would file, but noted Greenberg Traurig would be "working with us to examine the full range of restructuring options available to the city."
"One important element of any municipal restructuring is the restructuring of debt," he said. "They will be beginning the process of reaching out to bond holders to initiate discussion about potential debt restructuring."
Hartford will pay the firm a $25,000 flat fee during its first month of service. Beyond that, Bronin said he would work with the company to keep costs low.
The city is bracing for another round of cash flow problems this fall, with shortfalls of $7 million in November and $39.2 million in December. It resorted to short-term borrowing in June to close an end-of-year gap.
"I understand the city, without a state budget, has to explore all of its options," House Majority Leader Matthew Ritter, a Democrat from Hartford, said Thursday. "I believe that bankruptcy would be awful for the city and my goal is to do everything I can to avoid that, but that is conditioned on us getting a state budget adopted. And as of July 6, we don't have one."
City council members have expressed frustration at the suggestion of filing Chapter 9. Council President Thomas "TJ" Clarke II said he was open to the prospect of some financial restructuring, but remains opposed to bankruptcy.
"Finding a way to bring our bond holders to the table to have a conversation about restructuring – I think that is needed," he said. "But if there is an effort to file for bankruptcy, there is not going to be support from a majority of the council."
Under state law, a city or town must get consent from the governor to seek Chapter 9 protection. Hartford council members have questioned whether Bronin must get their approval as well.
Clarke said the panel could hire its own attorney to fight a bankruptcy petition.