Concession deal lacks emergency safeguards if economy slumps

While talk of a double-dip recession arose again Friday amid gloomy national job numbers, Gov. Dannel P. Malloy’s administration remained optimistic new union concessions will keep labor costs affordable–even though the package lacks an out-clause to cope with fiscal emergencies.

The lack of any such provision, coupled with a four-year prohibition against layoffs for most unionized state employees, led minority Republican lawmakers to predict the Democratic governor’s deal will sink state finances if Connecticut’s recovery from the last recession is anything but robust.

“I’m pretty confident that the steps we’ve taken will allow us to sustain balance over a long period of time,” Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes said.

The administration estimates the deal ratified last month by the State Employees Bargaining Agent Coalition will save close to $700 million this fiscal year and $900 million in 2012-13. Besides a two-year wage freeze for most bargaining units, the deal also calls for a new employee wellness plan, new limits on health care, pension and other retirement benefits, and joint labor-management panels to find $170 million per year in efficiencies in health care, technology and other state programs.

In exchange, most unionized workers cannot be laid off through the 2014-15 fiscal year, and those who accepted the wage freeze through 2012-13 will receive 3 percent annual hikes in each of the three fiscal years after that.

One big difference between this package and the 2009 concession deal negotiated by then-Gov. M. Jodi Rell is the lack of any clause allowing for additional cost-saving measures if state revenues fall below a threshold level, or if the budget reaches a certain deficit level.

“It leaves us exposed for incredible hardship should the economy fail to recover robustly,” said Sen. Andrew W. Roraback of Goshen, ranking GOP senator on the Finance, Revenue and Bonding Committee. “Rather than planning for the worst and hoping for the best, we have planned for the best and have no game plan should we encounter the worst.”

The national economy created a net total of no new jobs in August, the U.S. Bureau of Labor Statistics reported Friday, keeping the national unemployment rate at 9.1 percent–the same as Connecticut’s current jobless rate.

The $20.14 billion budget adopted for the current year was designed to run about $90 million in the black. But Malloy has committed to spend $75 million of that projected surplus to begin the process of converting state finances to Generally Accepted Accounting Principles. A series of budgetary guidelines designed to promote transparency and accountability, GAAP rules essentially require government entities to have sufficient funds on hand before they incur new expenses–a standard Connecticut never has followed entirely throughout its history.

But Barnes said even though the concession deal lacks an escape clause, that doesn’t mean the administration hasn’t positioned itself to respond in the event the national economy slips, or if federal deficit-cutting attempts lead to reduced state aid from Washington.

The administration has been cautious in filling vacant posts since Malloy took office in January, and there are roughly 2,500 unfilled jobs right now, Barnes said, adding more than 1,000 likely will remain unfilled as the fiscal year that began July 1 continues to progress. “There’s a large amount of vacancy right now and we certainly feel we have some more flexibility there,” he said.

Malloy won legislative approval this past spring for a consolidation plan that eliminated more than 60 posts and consolidated just over 80 departments, agencies, boards and commissions down to 57.

The governor has said repeatedly that he isn’t finished looking for ways to shrink state government. And Barnes said that even though downsizing proceeds more slowly without layoffs, his office already is investigating more consolidations as it begins advance preparations this month for the 2012-13 budget plan it must present to the legislature in February.

“We’re going to push to see more consolidations and restructuring,” he said.

Both the administration and union leaders have said they are optimistic that the three joint efficiency initiatives can produce major savings — a prospect GOP lawmakers have been openly skeptical about.

“I’m an employee too, so I’ve made some suggestions.” Barnes said, adding that while the concession deal charges these labor-management panels with finding savings this fiscal year and next, there is no reason the efficiency groups can’t keep working to trim government longer than that.

“The revised agreement just ratified by the members of our unions and approved by the General Assembly creates a process for putting cost-savings recommendations from front-line workers to work,” SEBAC spokesman Matt O’Connor said. He added that this effort is long overdue and that workers have been waiting for years to outline cost-saving ideas that past administrations did not want to discuss.

The unions also have noted that the emergency trigger in the 2009 deal wasn’t a great boon to the state’s finances. It allowed Rell to raid an additional $200 million from the state employee pension fund, further weakening an already under-funded account and contributing to the Malloy administration’s decision to tighten pension benefits in the new concession deal.

“When we sat back down with Governor Rell’s representatives in 2010, they refused to consider anything other than another early retirement incentive (program,)  which we opposed because of the negative impact it would have on the state pension fund,” O’Connor added.

The administration does have the option to lay off state police troopers and prison guard supervisors, whose bargaining units rejected the wage freeze. But those units represent fewer than 1,600 members combined out of roughly 45,000 unionized employees across all state government, and the administration already has laid off more than 75 from those two units.

But Barnes noted that the agreement does allow the administration to lay off new unionized employees hired after July 1, 2011 — and that could potentially represent several thousand workers by the fourth and final fiscal year of the no-layoff rule in 2014-15.

House Minority Leader Lawrence F. Cafero, R-Norwalk, however, said that doesn’t change the fact that state government is committed to raising most workers’ salaries by 9 percent over the next five years.

“We’re locked into paying these raises and keeping these employees,” he said, adding that there’s a good chance any federal deficit-cutting effort will slash state aid, which would only compound Connecticut’s problems if the economy is sliding downward again. “We do not have the option of letting most of these people go. Once that deal was signed, we were stuck.”

And with state employee salaries and benefits–which represent about 30 percent of the annual operating budget — effectively off the table for four fiscal years–Republicans said state government likely would go back to the taxpayers for another big hit.

“Our options are all but limited to this,” Cafero said.