While the state of Illinois’ credit rating teeters just above junk, the City of Harford beats them to the punch
Despite the fact that the state of Illinois finally passed a budget for the first time in three years,¬†¬†Moody’s ratings agency last week stated that it probably won’t be enough to keep their credit rating from falling down into Junk status. ¬†And while this eventual move by Moody’s will make Illinois the first ever state to fall into that low level of credit stability, over in Connecticut the drop in credit worthiness has fallen much faster.
On July 11 S&P lowered the city of Hartford’s credit rating down from BBB- to BB, making the capital of Connecticut now the next major city to have a credit status downgraded to ‘junk’.
And yet, while Illinois squirms in the agony of the unknown, another municipality that as recently as a month ago was rumored to be looking at a bankruptcy filing, the state capital of Connecticut, Hartford, no longer has to dread the unknown: on Tuesday afternoon, S&P pulled off the band-aid, and downgraded the city’s bond rating by two notches to BB from BBB-,¬†also known as junk, citing “growing liquidity pressures” and “weaker market access prospects”, while keeping the city’s General Obligation bonds on Creditwatch negative meaning more downgrades are likely imminent.
“The downgrade to ‘BB’ reflects our opinion of very weak diminished liquidity, including uncertain access to external liquidity and very weak management conditions as multiple city officials have publicly indicated they are actively considering bankruptcy,” said S&P Global Ratings credit analyst Victor Medeiros.¬†Hartford has engaged an outside law firm with expertise in financial restructuring. Officials also mentioned that the city would initiate discussions with bondholders for concessions to implement a debt restructuring if it didn’t receive the necessary support in the state’s 2019 biennial budget.
S&P also said that Hartford may be downgraded again if the state passage of a budget is significantly delayed, or if the city were not to receive sufficient support in a timely manner that would enable it to manage liquidity and allow it to meet obligations in a timely manner.
In short: the capital of America’s richest state (on a per capita basis), will – according to S&P – be one of the first to default in the coming months. ‚Äď¬†Zerohedge
Connecticut’s accelerated decline is explicitly tied to the exodus of many of their wealthiest residents and businesses who made up the bulk of the taxpayers supporting the ‘Wall Street Bedroom Community’. ¬†And with Hartford’s income tax rate sitting among some of the highest in the country, they are stuck between a rock and hard place because any discussion about raising more revenue through taxation will only accelerate moves out of the capital city.
With economic conditions continuing to decline around most of the country, more and more states and municipalities will be experiencing downgrades to their credit ratings, with some even finding themselves facing the potential of outright bankruptcy. ¬†But for now it appears that Illinois and Connecticut are at the end of their tethers, and there is little if any blood left they can squeeze out of their citizen turnips.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.