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Market analysts: Hartford bankruptcy could have ‘contagion’ effect

Carol M. Highsmith / Library of Congress

The Hartford skyline

As the prospect of a Hartford bankruptcy looms large, an independent bond market analysis firm warned this week that it could have “a contagion” effect, lowering bond ratings and raising borrowing costs for other communities and the state as a whole.

“Should the city of Hartford actually default or be permitted to file for Chapter 9 bankruptcy, other Connecticut cities are likely to face somewhat higher borrowing costs going forward,” Municipal Market Analytics wrote in a briefing titled “Hartford and Connecticut Contagion.”

“Similarly, the state of Connecticut would reasonably see its own borrowing costs rise as investors rightly assume that a Hartford bankruptcy hastens the state’s ongoing economic contraction, further hinders the state budget’s ability to fully fund long-term pension costs and invites progressive ratings downgrades,” the briefing stated.

The Concord, Mass.-based research firm also wrote that a default by the capital city on a debt payment due at the end of October also could have ripple effects, but not as severe as those from a Chapter 9 filing.

“We share the concerns of Municipal Market Analytics of the potential fallout from a bankruptcy in Hartford, which is why we have proposed realistic and reasonable steps to aid the city through this difficult period, including the municipal restructuring grant — which would provide the city assistance while simultaneously guiding it through a process that includes review and accountability,” Chris McClure, spokesman for Gov. Dannel P. Malloy’s budget office, said Thursday.

Malloy and Democratic legislative leaders recommended including $46 million in emergency relief for distressed communities in the next state budget. The governor also has been pressing since February for a new Municipal Accountability Review Board to target cities and towns at risk of insolvency and intervene before problems become…

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