Gov. Dannel P. Malloy unveiled plans Monday to reverse nearly two decades of budget gimmicks that leave the state facing huge payments over the next two decades to sustain Connecticut's grossly underfunded state employee pension fund.
But while Malloy touted potential long-range savings, they come with a high price that must be paid up front: an extra $3 billion in pension payments between next fiscal year and 2023. After 2024, the contribution would drop annually, and by 2031 Connecticut would be $5.8 billion ahead.
Malloy's proposal drew a strong endorsement from union leaders and a mixed review from a Republican critic.
House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said Malloy's pension concerns are well-placed, but he questioned whether the fiscally strapped state is ready to make its first extra payment of about $123 million in the fiscal year that begins July 1.
Ben Barnes listens as Malloy explains his pension proposal.
"We proposed it long before the governor was the governor," Cafero said of the need to better fund pensions. "So, I certainly applaud the governor for his efforts."
Malloy, a Democrat who contrasted his approach to pensions with that of his two Republican predecessors, said the state cannot afford to delay stabilizing the pension fund.
"I made it clear from the day I took office that I am committed to ending years of bad financial practices and getting the state's fiscal house in order," Malloy said. "We have made enormous progress on that front, and in doing so we've begun to stabilize the state's finances. ... But there is more to be done on this front."
At stake is a pension fund that plunged to its lowest level in more than two decades by mid-2010, holding enough assets to cover just 44 percent of its obligations.
A new report released earlier this month found that by June 2011 the funded ratio had climbed to nearly 48 percent due to healthy investment earnings and some new pension restrictions Malloy negotiated with employee unions last spring. But fund analysts typically cite a funded ratio of 80 percent as a healthy level.
The pension fund has suffered from an array of questionable fiscal policies since it began in the mid-1980s with a huge financial hole. For nearly four decades before that, Connecticut had put nothing away, and therefore gained no investment earnings, to help cover pension costs.
Several early retirement programs and pension fund raids under previous governors and legislatures to help balance the state budget also have weakened the fund.
And the linchpin of Malloy's plan is to reverse an agreement reached in two stages, in 1995 and 1997, by then-Gov. John G. Rowland and the unions that put the pension program on what amounts to a balloon mortgage schedule.
The two sides agreed to abandon a pension fund contribution schedule that required largely equal payments, with annual inflationary adjustments, over the next 30 years to eliminate the unfunded liability.
In its place they imposed a system of ever-escalating payments. Although payments were lowered in the short-term, they have been increasing dramatically since the late-1990s.
The state's annual contribution to the pension fund, which stood at $844 million last year and is $926 million this year, is on pace to top $1.5 billion in 2019, $2 billion by 2024, $3 billion by 2029 and approaches $4.5 billion in 2030.
Reversing the actions taken in 1995 and 1997 would cost an extra $123 million starting next fiscal year. After that, Malloy also would gradually increase annual pension contributions further -- beyond contractually required levels -- starting in 2014, with the goal of funding 80 percent of all pension obligations by 2025 and 100 percent by 2032. The governor's plan also would exempt all contributions above contractually required payments from the constitutional spending cap.
"It's no honor to have the worst-funded pension program in the country," Malloy said. To relinquish that "honor," Malloy must find the significant dollars in his next state budget.
Technically, Malloy already has the funds he needs to begin making that extra $123 million payment. The preliminary $20.4 billion budget adopted last summer for the 2012-13 fiscal year was designed with a built-in $496 million surplus.
But that budget, and the $20.14 billion plan approved for the current fiscal year, are facing their own problems, due largely to state income tax revenues falling well short of initial projections.
The administration reported last week that the current budget, which was supposed to finish $88 million in the black, now has lost nearly all of that cushion, and is on pace to finish with a $1.4 million surplus.
In addition, the surplus projected for next year is down below $250 million.
Further compounding problems, Malloy also needs to find an extra $75 million this year and $50 million next year to continue the ongoing conversion of state finances to Generally Accepted Accounting Principles.
GAAP rules are a series of common financial guidelines established by the Government Accounting Standards Board to emphasize transparency.
The Malloy administration estimated in its Fiscal Accountability report in mid-November that state government would need another $1.7 billion in its coffers to cover all its obligations under GAAP rules. And that differential grows annually due to inflation. The $125 million Malloy needs would not reduce that differential, but merely would cover inflationary costs and effectively stop it from growing.
"We are realigning our budget objectives," Malloy said. The governor, who signed more than $1.5 billion in new state taxes into law last spring to help close a record-setting budget deficit, said Monday he would not seek to raise additional taxes to cover his pension proposal.
Cafero said it is "great news" that Malloy wants to end decades of inadequate pension funding, but the governor should have considered asking the State Employees Bargaining Agent Coalition to consider other changes to worker benefits.
"Are there other provisions in SEBAC that can be revisited?" Cafero said.
The concessions package Malloy negotiated with unions last year included a two-year wage freeze, restrictions on retirement benefits, a new employee wellness program and other changes. But it also prohibits Malloy from laying off most unionized workers for four years -- a component Cafero has criticized on several occasions.
"Paying off our pension debt is a good thing, but doing so outside of the spending cap shows that Governor Malloy is still not serious about reducing unnecessary state spending and, further, that he is not serious about pension reform," added Senate Minority Leader John P. McKinney, R-Fairfield. "Clearly, his deal with SEBAC failed to adequately deal with our long term indebtedness. Real leadership requires real reforms and that is what is needed in these difficult times."
Malloy's plan, which still needs approval both from unions and from the state Retirement Commission, drew praise Monday from labor leaders.
"It was the responsible thing to do," said Salvatore Luciano, director of one of the largest bargaining units in state government, Council 4 of the American Federation of State, County and Municipal Employees.
"This has real long-term implications" both to stabilize pensions and to save state government funding, added Robert Rinker, director of CSEA-SEIU Local 2001, formerly the Connecticut State Employees Association.
American Federation of Teachers President Sharon Palmer said not just state officials, but unions as well, were guilty of turning too easily to fiscal gimmicks in the past.
"We became so accustomed to small ideas and quick fixes," she said, "that we were unable to think any other way. This (proposal) is so important and it makes perfect sense."
Malloy's proposal comes as he is about to leave for a prestigious economic conference and after a week of difficult financial news for Connecticut: the state's financial cushion is shrinking, and a ratings agency last week downgraded the state's credit rating.
The governor has accepted an invitation to participate in the World Economic Forum's annual meeting in Davos, Switzerland, beginning Wednesday. He leaves late Tuesday.
And what about retirement health care?
I find it absolutely unbelievable/insane that Malloy is going to Davos for the world wide financial cinference. Why dosen't he stay home and try to fix our critical financial problems. He is bragging about the pension plan. How about the $26.6 billion in health care obligations that far exceed the pension problems. At least for the pension there is some funds to earn money while there is only $10.0 million not billions to earn money for the health benefits.
Also why don't we have a report after 6 months on the so called union savings that were suppose
Oh here we go! Some back door dealings again to try to open up the SEBAC agreement for state employees to give back more. It is clear that Cafero wants that. It is not the state employees who have created the mess! Even with all the give back and huge tax increases, this state still has money issues! Now 6 more judges have been nominated, where is the money coming for that? Where is the support staff for all of these judges? Pure craziness!
The taxpayers have certainly paid enough to fund more than reasonable pensions for state workers/teachers but anyone following the situation knows the money then went for immediate pay due to excessive OT, excessive raises and staffing for teachers(my town had 800 teachers for 14,000 students in 73(peak) and has 780 teachers for 7,000 students now. Now they say "where is the money"- they are like the child who killed his parents and then begged for mercy on the grounds they were an orphan. Malloy is a career govt worker(prosecutor, mayor,gov)and may not even be aware is a private sector
Read MoreArt, in 1973 kids with special needs sat around in a classroom or at home with very little in services. The increase in education workforce and expenditures since that time is largely due to special education.
Money went to OT and excessive raises? The republican governors oversaw the creation of a house of cards to prop up the pension fund. Who is an "average worker"? Public servants aren't "tax generating workers?"
This simplistic demogoguery is probably the fault of a teacher who didn't instill the capacity for greater critical thought in his or her students so he or
Read MoreThe first thing the state could do is to solve this pension/benefit mess is to eliminate the program for all new hires. In fifty years or so the state would not have this issue to deal with. All state employees would be responsible for their own retirements just like the private sector. Taxpayers should not have to fund cradle to grave benefits for public sector employees period.
public sector workers are paid much more in taxes and accrue large pension and health care expenses. While they pay taxes of course, the net is that receive far more than they pay and are not "tax generating" workers. For example, someone in the profit making sector who makes 60K and pays 3k in state taxes generates taxes for the state. A state worker who makes 60k but pays the same 3K costs net revenue for the state and that is before pensions and benefits.
I asked The Mirror to look into this and report upon the Health Care issue but, to date, nothing.
This is the dirty little secret that will, someday, explode.
Maybe Mr. Phannuf (sp) is looking into this.
Art,
I agree 100% that new employees should have been put on new pension/401k sustainable type plan. That would have stopped water coming into the ship. Then we could start bailing out the water.
Look to the foolish deal with SEBAC for the root cause of the problem.
We cannot expect Connecticut taxpayers to pay so much more every year.
Malloy's failure to exact real concessions must be reversed.
The new health care plan is an improvement. So why wasn't it imposed on everyone, including retirees?
COLA reform alone would have fixed the pension problem.
Guaranteed increases for existing retirees should have been addressed.
COLA should have been eliminated entirely, not just the tiny decrease, only applicable to new retirees, found in the deal.
Shame on you Mr. Governor, for caving to the unions again.
"Technically, Malloy already has the funds he needs to begin making that extra $123 million payment."
Technically, but not really?
Give us a break!
In spite of a gigantic tax increase, Malloy's budget is already in big trouble. He wants to add money for pensions, add a billion for the UConn Health Center and another 800 million for "education"??
Where does he think all this money is going to come from?
Hold on- he's a democrat. Money is no object. Spending has no limits.
And don't blame Rowland or anyone else without putting the blame on unions for those
Read More"The republican governors oversaw the creation of a house of cards to prop up the pension fund."
If they were bad why did the unions agree to them? Don't blame Republican governors alone- that's only half the problem.
And didn't the state legislature have to agree also?
Who controlled all that? Repuiblicans?
NOT.
Hello?
Unless we have a very detailed report on the so called $700 million in stateworkers savings this year Malloy/Barnes can say anything they want about the problem. The facts are that Malloy promised $1.0 billion in state workers savings this year to justify increasing taxes by $1.5 billion(So called shared sacrifices). After the democrats approved the huge tax increase he then lowered the savings goal to only $700 million. Then the only item really defined was a wage freeze($150 million) for two years. On this point everyone talks about a 3% increase when the actual was 5% when you include
Read MoreThe premise of Davos this year is to call for the end of capitalism. democrats love that thought.
It's obvious from the comments here that many people still do not "get" the state government pension issues. The ONLY legally permissible way to further cut down on the State's (future) pension obligations is to further decrease the number of State employees a bit and to SHARPLY reduce the amount of management-ordered mandatory overtime. That's it in a nutshell, folks. For 40-60 years your elected state officials DELIBERATELY conned everyone by offering what was a basically reasonable pension pension plan in lieu of better salaries but DELIBERATELY failed to fund it via investments in favor of passing the financial and
Read MoreThere are plenty of warning signs out there for what happens when you ignore mounting pension liabilities. The most basic is that you continue to throw the burden on taxpayers, as they’re forced to have their taxes raised (http://nyti.ms/p9JEUG). If they finally take a stand against tax hikes, then you’re usually left with layoffs in the public sector. Either way you’re left sacrificing the social and physical infrastructure of the state.
Really, all Connecticut has to do is look next door to see why it’s so important to get its pension fund in order. With one city already declaring
Read MoreTo Phil,
As much as I would like to see the state file for bankruptcy to abolish the current pension system, I believe your method is the most logical. As long as the union backed Democrats have power in Hartford, the problem will only get worse.
Art, unions are THE problem? They didn't underfund the pensions. DrJohn, the unions agreed to the plan not the reckless disregard for the funding which was the government's responsibility. Funny how the republican governors escape blame in these comments but blame is readily heaped upon a democratic governor who is actually taking steps to clean up the mess.
AIG and big banks get bailed out with billions of tax payer dollars yet the critics focus their vitriol on middle class government employees. There's a great cartoon showing an angry mob confronting bank executives carrying bags of cash. One of executives
Read MoreThe Courant came out in favor of 401Ks today.
Collective bargaining will be undone in many state as taxpayers pursue RICO charges against public sector unions for undue influence over politicians. Voters will also pursue a conflict of interest charges involving state employee pensions incuding their own and family members.
The system of self-reward and graft and paying the union VIG for votes must end.
Check out the Jerry Brown pension reform plans for California.
♣ Eliminate all pension acceleration and spiking and buy ins. No exceptions including political and appointees.
♣ Pension based on highest 36 months of consecutive
Read MoreTo GoatBoyPHD,
The plan you outlined is EXCELLENT!. The problem is as long as the Democrat Party in this state is controlled by the Unions and SEPAC, it will NEVER happen. The Unions have too much of a vested interest in retaining the status quo.
Phil_EngageAmerica - There is NO comparison to be made between CT and RI, as there are no true areas of similarity between them. And NO RI city has *ever* declared bankruptcy... a teeny-weeny village smaller than the size of your palm was placed into formal fiscal oversight and the village's retirees voluntarily agreed to some benefit reductions, but that's all.
So let me get this straight....because I have worked 20 plus years in state service I should not be entitled to my Tier II Hazardous duty retirement plan? (I welcome anyone who wants to work in a maximum security prison to walk a mile in my shoes)
Rather than attack those with a defined pension why not demand that for all? A decent pension and healthcare benefits....oh and Goat Boy ..I"ll accept medicare as my primary health care option in retirement when members of congress are provided that as well.
Keep on complaining folks...it is the 1% with all
Read MoreGoatBoyPHD - In fact, Connecticut has already implemented some of those Californian “Jerry Brown ‘initiatives’ “. There effectively is no more pension “acceleration.” “Buy-in” opportunities have already been brought down to almost none (for all practical purposes), and even among those few employees who qualify for what “buy-in” options are still available VERY few of them actually make use of those opportunities (because they simply don’t have the extra money required for the buy-in). The minimum age and employment length for full (“normal”) pension benefits have already been increased. Pension payment levels are already based on the highest 36 consecutive
Read MoreTo cbar,
There are plenty of hazardous duty jobs in the private sector. What makes your job any different. I'm sorry. You're not entitled to a lifetime paycheck with free medical benefits. If every job had the benefits you have this country would be broke. Look what's happening to Greece and Europe. If we continue with these obscene retirement packages, the US will not be far behind. Connecticut needs a private sector 401K program and it needs it yesterday.
This is a long detailed answer. State, municipal and public education workers have full time negotiators that keep them apprised of their contracts, givebacks, etc and compare them to other public unions. That is why a Board of Ed will say "Wolcott got 5%, Berlin needs the same". Our negotiators are by and large lawyers who look to build their practice by running for office and getting their names out there. Many firms encourage their young lawyers to run- they become "rainmakers". Somebody like me(in IT), a pharma researcher or a UTC Engineer cant run for
Read More"cbar" - Trying to reason with greedy people who see no problem with trying to steal other people's money or paid-for benefits - such as yours - is usually a complete waste of time. You paid for and otherwise earned your pension benefits and therefore you will receive them. And the courts will back you (and all others in a similar situation) up on it (and have already done so in other judicial jurisdictions). BUT - be prepared to have to do real, hard political "battle" in order to help prevent wasting time dealing with future (and a few current)
Read MoreEasy target once again- the inpenetrable, dishonest, overpaid State employee unions allegedly making the greatest campaign contributions in order to keep their racket in place. Your a bunch of uneducated clowns. I bet you have no problem with Blue CrossBlue shield, Exxon Mobil, General Electric, At&t and all of the top pharmaceutical companies who happen to contribute in excess of $100,000,000 in political campaign money in order to maintain the political stronghold they have over all of us. Controlling what we buy, how much we pay for it and continue to funnel money from the middle class to the
Read More"He brings experience. He's been elected."
Mike Clark on endorsing State Sen. Andrew Roraback for the Republican nomination for the 5th Congressional District race.
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