The last major American city to go bankrupt was Detroit, which was dealt a mortal blow by the financial crisis and officially filed for protection from its creditors in 2013. Last year, Puerto Rico became the next car on the bankruptcy train, and other U.S. territories may follow suit. But so far, large U.S. cities have remained solvent, even as the public pension crisis festers, and cities like Chicago look to be on the edge.
But it just became more likely that we will see another big city bankruptcy in the near future. Governing magazine reports on the travails of Hartford, Connecticut:
Standard & Poor’s downgraded Hartford debt to junk bond status late Tuesday, less than a week after the financially troubled capital city hired a New York law firm with expertise in restructuring municipal finances.
The Wall Street ratings agency downgraded most city of Hartford outstanding debt to BB, a level that’s classified as speculative, also known as non-investment-grade, or junk, from BBB-. That reflects a strong possibility that Hartford could default on its debt or renegotiate it to pay bondholders less money.
As we noted before, it’s remarkable that this is taking place in one of the richest states in the union and in the midst of an historic bull market. The structural problems in state and local finance run deep, and they will not resolve themselves.We need to be prepared for the fiscal storm that will sweep the country the next time a recession hits.