In March of 2019, the City of Hartford won a number of cost-saving provisions in an interest arbitration decision between the city and the Hartford Municipal Employees Association. The stakes were high for Hartford, which in 2017 had been hit with a costly arbitration decision involving the same union that ...
What Happened to Hamden?
Driving through Hamden, one would never think it is a town in severe financial distress.
Hamden looks vibrant, trendy, hip and well-off. It was ranked one of the best places to live by Money Magazine in 2016 and is home to Quinnipiac University, but a look at the town’s finances reveals something quite different.
Hamden, called “The Land of the Sleeping Giant,” has a giant-sized debt problem and it’s costing town taxpayers.
While much attention has been paid to the plight of Hartford, which barely staved off bankruptcy thanks to a state bailout, Hamden’s difficulties have largely remained a problem with only regional attention.
But a study by Marc Joffe of the Reason Foundation and the Yankee Institute, which scored Connecticut’s 169 municipalities based on their 2016 financial reports, found Hamden — not Hartford — faced the greatest financial challenge of all.
Joffe used a scoring system which is actually more lenient toward municipalities than ratings agencies like Moody’s Investment Services. A perfect score would be 100. Any municipality scoring 50 or less is considered in “severe financial distress.”
Hamden scored a 25, nineteen points lower than Hartford.
Based on the town’s 2016 financial report, Hamden faces a long-term total debt liability of $784.1 million.
The majority of that debt comes from retirement promises made to employees which the town never funded. Even though Hamden moved new hires into the state-run Municipal Employee Retirement System in 2007, its legacy costs for current employees and retirees continues to grow.
Pension liabilities for Hamden’s 1,154 active and retired pension recipients make up $276 million of the town’s total debt, according to Hamden’s 2016 pension valuation.
Historically, Hamden didn’t pay the actuarially required contribution toward retiree pensions and benefits, instead letting the costs compound over time. The town also used a 7 percent discount rate for its contributions, but only received a 4.75 percent return, according to the valuation.
According to a letter from the state’s Office of Policy and Management, Hamden’s pension fund was only 10 percent funded in 2014. It’s ARC payments — which the town wasn’t paying — grew from $19 million in 2012 to $29 million in 2015.
The costs of the debt were growing faster than the town could pay, so in an effort to bolster the pension fund, Hamden took out a $125 million pension obligation bond in 2014, which increased the pension fund to 37.2 percent funded.
Pension obligation bonds are generally considered risky moves, supplanting one debt with another. The bond issuance will create savings for the town between 2019 and 2025, but afterwards the cost of the bond will outstrip any short-term savings, according to OPM’s projections.
Pension bonds also come with requirements and restrictions.
According to the letter from OPM and the State Treasurer’s Office, Hamden will have to pay the full ARC for its pensions. State law says a town can “ramp up” its ARC payment and Hamden will start paying the full ARC this year.
The ARC plus debt service on the bond was $16.3 million in 2015 and will grow to $33 million by 2022 and eventually top out at $38.8 million by 2040.
The numbers are not set in stone, however, and can change depending on the pension fund’s rate of return.
The letter also stated Hamden would have to raise its mill rate by an average of 4.6 percent every year for six years.
Hamden was forced to raise property taxes in 2016 and 2018 in order to deal with the growing costs, pushing the town’s mill rate to 47.96, one of the highest rates in the state. Hamden also had to lay off some clerical workers, and teachers were forced to take furlough days in an effort to bridge a $1 million education budget shortfall.
Rep. Josh Elliott, D-Hamden, says the town’s fiscal problems mirror the issues faced by the state.
“As with the state, the town of Hamden has been over-borrowing, without putting enough money away for pension obligations. Unfortunately, towns have much less flexibility than the state to ensure that getting out of the hole is done equitably,” Elliott wrote in an email.
The state of Connecticut hasn’t helped with Hamden’s woes either, withholding car tax reimbursements until April of this year and holding education funding flat to deal with ongoing state budget deficits.
According to Hamden Mayor Curt Balzano Leng in an op-ed for the Hamden Patch, the state has reduced Hamden’s municipal aid by $11 million over the last two budget cycles.
It isn’t just retirement costs that are a problem for Hamden; the town also has the fourth highest rate of bonded debt per capita in the state, according a report by OPM. Leng has indicated he wants to restructure some of that debt to save money.
Hamden’s credit rating was downgraded by Moody’s in December of 2017 with a “negative outlook” due to the town’s pension obligations and funding cuts from the state.
And the future doesn’t look especially bright: the costs of the pension obligation bond will continue to rise, and the state of Connecticut’s significant budget deficits threaten future municipal aid cuts — not just to Hamden, but to all Connecticut municipalities.
That doesn’t bode well for residents of Hamden. Michael Mele, a 75-year-old retired resident of Hamden, believes the burden of Hamden’s history is falling squarely on the taxpayers.
“For 30 plus years, officials have kicked the can down the road,” Mele said in an interview. “Now, it’s a financial time bomb.”
Mele points out that Hartford was just bailed out of its debt payments by the state, but he doesn’t believe Hamden could ever expect similar treatment from a state which faces its own significant financial challenges.
“No one will be bailing out the town of Hamden,” Mele said.
In reality, it will likely be town property tax payers who bail out Hamden. Although, it’s mill rate is high, it is still well below the rates of Bridgeport, Waterbury, and Hartford, which leaves room for the town tax burden to grow.
Elliott says that while it’s possible to blame government financial mismanagement, Hamden is making headway in correcting mistakes of the past.
“I know that people are really getting squeezed in Hamden,” Elliott said. “While there was just a fairly significant mill rate increase, we may now see a surplus, and while the strain will be felt by the middle class, working poor, and elderly, we are finally doing the right thing and not just relying on debt to get us through.”
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