Gov. Dannel P. Malloy strongly ruled out any chance of Connecticut declaring bankruptcy in order to avoid paying its debts.
The concept of declaring bankruptcy has been spreading around the country, but it will not happen in the Nutmeg State.
"Oh, no. I'm ruling it out,'' Malloy told reporters Monday at the state Capitol complex. "I think this is politics. I think it's wrong-minded. I think it's extremely dangerous to the municipal bond market and has the potential of setting back our national economy to a very large extent, affecting our national and international marketplace for municipal debt. This is just not thought-out. That really is crazy talk.''
Connecticut is facing one of the biggest budget deficits in its history as the national and state economies remain sluggish. With reduced tax collections as unemployment remains high, the state is facing a projected deficit of $3.5 billion for the fiscal year that starts in July.
Malloy is expected to unveil a package of tax increases and spending cuts in order to close the deficit when he unveils his budget on February 16.
As other states face problems similar to Connecticut, talk has spread around the country of allowing states to declare bankruptcy. In theory, that would allow them to avoid paying the massive pensions that are owed to state employees - some of whom earn pensions of more than $100,000 per year and at least eight earning more than $180,000 per year.
"If states start declaring bankruptcy to avoid agreements that they've made, it will become quickly impossible'' to sell bonds in the municipal bond market on Wall Street, said Malloy, who was supported by all of the major state-employee unions in last year's election.
"If you start allowing any of the 50 states to declare bankruptcy, the marketplace will disappear. That's why this discussion is really quite insane,'' Malloy told reporters. "It is a classic example of a divisive issue that someone wants to capitalize on. To be able to say that people could avoid their obligations with the stroke of a pen is very attractive.''
Nationally, a small number of local communities have declared bankruptcy through the years. States, however, are currently prevented from declaring bankruptcy under federal law.