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<i>The Week in Public Finance:</i> Hartford Nears Default, Columbus Soccer Threatens to Move and More

A roundup of money (and other) news governments can use.

Connecticut Legislature
Hartford Mayor Luke Bronin
(AP Photo/Jessica Hill)

Hartford Could Be Nearing Default

With no aid from the state in sight, Hartford, Conn., could default on its debt as early as Nov. 15, says Moody’s Investors Service. The capitol city, which has publicly explored the possibility of filing for bankruptcy, has requested an additional $40 million to help balance its fiscal 2018 budget and preserve cash flow.

Last month, Mayor Luke Bronin said the city only had enough on tap to meet its financial obligations through the end of October. That could change if the state decides to step in and help. But that's highly uncertain: Connecticut still does not have an operating budget.

According to Moody’s, Hartford is facing operating deficits of $60 million to $80 million per year through 2036, or 11 percent of the budget. The city has said that it would receive roughly $50 million more annually if the state fully funded its payment in lieu of taxes, which is made to compensate local governments for some or all of the tax revenue lost due to tax-exempt property. That would go a long way to solving Hartford’s structural problem.

The Takeaway: The lack of a state budget is forcing Hartford and other Connecticut localities into fiscal crises. That's because unlike in other states that have stalled on a budget, many cities in Connecticut are highly dependent on state aid.

Moody’s earlier this week placed the ratings of 26 cities, towns and three school districts under review for possible downgrades, affecting approximately $3.5 billion in outstanding debt. The cities being reviewed include Bridgeport, New Haven and West Hartford.

Hartford has already been downgraded deep into junk bond territory. If the state doesn’t help Hartford balance its budget and the city does default or file for bankruptcy as a result, there would likely be a ripple effect on other vulnerable Connecticut municipalities.


Build Us a Stadium Or Else…

Columbus, Ohio, officials are facing the very uncomfortable decision of either paying for a new soccer stadium or watching their beloved Columbus Crew SC depart for another city.

This week, the team’s president announced he would move the team to Austin for the 2019 season if the city and state don’t pay for a new downtown stadium.

The Crew plays on the grounds of the Ohio Expo Center. The stadium opened in 1999 and was, at the time, one of the first to be built specifically for a pro soccer team. But the city uses the center for a variety of other of events, which led Andy Loughnane, the president of business operations, to complain earlier this year that his team “is forced to fit 17 games and an international friendly into 29 weeks as opposed to 35 weeks [like the rest of the league].”

The Takeaway: Here we go again. As the ever-blunt Deadspin put it, Major League Soccer "is not ... one of this country’s so-called Big Four, but let no one say the scrappy upstart doesn’t extort American cities like a big-boy league.”

Whatever lawmakers decide will be met with controversy. If they do nothing and let the team leave, they’ll face criticism. If they use taxpayer money to build a new stadium, that also won’t be popular. Either way, there doesn't yet seem to be a consensus on any action.

Despite the Crew’s threat, it would be hard to imagine a fully taxpayer funded stadium for the team in this era. D.C. United, for example, spent the better part of a decade trying to get other Washington-area jurisdictions to build it a new home before reaching a deal to stay in D.C. with a partially funded soccer stadium.


What Happens to Medicaid During the Next Recession?

A new report from Moody’s Analytics this week looked at how state budgets responded to the last recession and whether they were ready for the next. The conclusion was that most states aren’t fully prepared. But one interesting takeaway from the analysis involves Medicaid.

Medicaid spending is counter-cyclical, meaning that it tends to go up during economic downturns because more people become eligible. But Moody’s found that spending in Medicaid expansion states will actually be less volatile during the next downturn than in nonexpansion states. If the next fiscal shock is severe, average Medicaid spending will increase by 3.04 percent for nonexpansion states, according to Dan White, the report's author. That’s compared with an average of 2.81 percent for expansion states.

The Takeaway: The finding isn't all that surprising because when you have more people as a baseline in a program, adding tens of thousands more has less of an overall impact.

But Medicaid spending volatility is just one factor to think about in a recession. The state’s revenue volatility is also a big consideration. And that’s where this story can balance out in many states, says White. That’s because more conservative states (excluding most oil states) tend to have a less volatile revenue structure thanks to a flat income tax or a more regressive tax structure. They also trend toward not expanding Medicaid. The reverse is true for blue states.

Case in point: New Jersey could face an 18 percent revenue shortfall in a severe recession but Medicaid spending is only projected to increase by 1.3 percent. Meanwhile, Texas could see a 12 percent shortfall but Medicaid spending would jump by 4.3 percent, according to the analysis.

*The story was updated to reflect that the Columbus Crew SC play on the grounds of the Ohio Expo Center, not in the center.

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Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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