Malloy to seek $2 billion in employee concessions, savings over two years

Gov. Dannel P. Malloy’s proposed biennial budget will rely on about $2 billion in state employee concessions and other labor savings over the next two years, his senior media adviser said Tuesday.

The Malloy administration’s statement it will seek deep concessions follows by a day its announcement the governor will propose a $1.5 billion tax increase when he releases his budget Wednesday.

Roy Occhiogrosso, the governor’s senior media adviser, would only confirm the extent of what the administration will be seeking from organized labor, which played a pivotal role in the governor’s close victory last fall. He declined to say how the concessions would be spread over wages and benefits.

Later Tuesday morning, Malloy told reporters he is seeking $1 billion in labor savings in each of the next two fiscal years. He declined to say if layoffs are an alternative to the savings his administration is pursuing with the unions in what both sides describe as informal talks, not collective bargaining.

“It’s a significant ask, but there are things that we will reference in tomorrow’s speech that are specific to that point,” Malloy said.

The state pays about $5.4 billion in employee compensation annually, including nearly $2 billion in fringe benefits. One billion dollars in labor savings would equal nearly 20 percent of all wages and benefits, but Occhiogrosso said such savings could come in areas other than direct compensation.

Malloy acknowledged a backlash over the prospect of seeking tax increases and steep labor savings, but the alternatives are worse.

“If I don’t get that, do we shred the safety net? Do we empty our nursing homes? Do we balance the budget as other administrations have sought to do on the backs of local communities, jacking up the property taxes which are more regressive then any other tax with respect to the middle class and senior citizens?” Malloy said. “Is that our alternative?

Malloy’s push for concessions reflect a political and fiscal reality: Not only does the governor need nearly $2 billion in spending cuts to balance his budget for the fiscal year that begins July 1, he has as great a political need to show he is shrinking state expenditures.

By quickly putting a number on the labor savings, Malloy appears to be trying to change a political conversation  at the Capitol, on talk radio and elswhere in the media that revolved around a tax increase that exceeds the $1.1 billion sought by Lowell P. Weicker Jr. in 1991, though Occhiogrosso noted that the Weicker increase was bigger after being adjusted for inflation.

In today’s dollars, according to the U.S. Bureau of Labor Statistics’s inflation calculator, Weicker’s tax increase was $1.7 billion.

After declining to answer questions Monday night about employee concessions, Occhiogrosso confirmed the two-year number in a brief telephone interview shortly after 7 a.m. today, two hours before the administration was to brief Republican legislative leaders on the budget. Democrats were briefed Monday.

The Republican legislative leaders largely withheld comment Monday on Malloy’s tax plan, but Republican State Chairman Chris Healy immediately questioned the Democratic governor’s resolve to control spending.

“Democrats have caused this problem through their wild and reckless spending,” Healy said. “Gov. Malloy claims he has spending cuts to match, but so far there is little evidence Gov. Malloy and his team have the stomach for what needs to be done.”

Malloy had long been expected to demand more the $900 million in concessions that his Republian predecessor, M. Jodi Rell, obtained from labor in 2009.

The unions and Rell negotiated a concession deal that saved more than $900 million total spread across three fiscal years. But less than 42 percent of that savings, $372.9 million, came out of workers’ pockets through a wage freeze, furlough days and higher health care costs.

One-third of those concession was what Malloy has derided as a budget gimmick: the deferral of contributions into the pension fund.

With his opposition to anything that smacks of borrowing, it appears that Malloy, the first Democratic governor in 20 years, also will be the first chief executive to attempt to substantially restructure employee compensation levels.

Larry Dorman, a spokesman for the state employees’ bargaining coalition, said in an emailed statement that the administration and the unions have yet to address collective-bargaining issues, but their talks have centered on other savings and efficiencies.

“State workers have already begun working with the administration to produce savings and efficiencies that don’t damage, and in fact enhance the critical services and public structures needed to turn the economy around,” he said.

His statement side-stepped the issue of wages and other compensation.

“We have vowed to continue to work with the Malloy Administration both in the short term and the long term to make the ideas of front-line public service workers part of the permanent process of transforming state government to better serve the families of this state,” he said. “Whether the proposed budget had $1 of assumed savings in it, or $10 billion dollars, we will work hard to protect and enhance the public structures Connecticut needs for a better future.”

The unions have beeen restrained in their reaction since Malloy put state employees on notice two weeks ago that he does not believe current compensation levels paid to state employees are sustainable.

“For Connecticut to move beyond its current economic crisis, its budgetary crisis, we’re going to need to make headway with our employees on returning to a sustainable system of compensation and benefit allocation,” Malloy said last month.

Mark Ojakian, the deputy secretary of policy and management and a former top aide to Lt. Gov. Nancy S. Wyman, is leading the administration’s talks with labor, a process that will continue as Malloy tries to move his budget through the legislature.

With the unions not yet acknowledging that collective-bargaining issues are on the table, the administration has yet to publicly state how it will press the state employee unions to give up benefits, particularly for health care, a major cost driver for the state.

The state pays $1 billion a year for health care for more than 50,000 state employees, 42,000 retirees and their families, but health benefits are set by an agreement that was negotiated by former Gov. John G. Rowland and runs until 2017.

Malloy insisted throughout last fall’s campaign that he wouldn’t press unions for wage or benefit givebacks without first hearing their ideas to improve efficiency without concessions. But two weeks ago, Malloy said he needs ideas that will save money in the next fiscal year.

“Let’s be very specific: We need to bear fruit right away,” he said.

During the gubernatorial campaign, the State Employees Bargaining Agent Coalition put forth a “Jobs for All Working Families” agenda, often referred to as the “win-win proposals,” as their contribution to solving the state’s budget problems. But many of the suggestions require an initial investment or are geared to produce savings over the long term, rather than make a significant, immediate dent in the impending deficit.

Dorman’s reply to Malloy two weeks ago was cautious: “Turning around two decades of financial and operational mismanagement at the top of state government is not easy.”

He added that “as for wages and benefits, when management and labor work constructively together, as we have through our joint health care cost containment committee, we have saved hundreds of millions in dollars for the state.  Ultimately the key is for all of us to work together on behalf of our mutual goal of helping turn this state’s economy around by making the public structures upon which our economy depends more effective and efficient for everyone.”

Malloy’s budget speech Wednesday will be only the latest in a series of steps to sell his fiscal plan. In the weeks leading up to the speech, Malloy has presented a series of agency-consolidation plans.

Next week, he will begin a series of 17 town-hall meetings on the budget, starting at 7 p.m. on Feb. 21 at the City Hall Annex auditorium in Bridgeport and resuming three nights later in Torrington. The meetings will continue through April.