A key piece of Gov. M. Jodi Rell’s plan to close the deficit in next year’s budget hinges on a legal question with a murky answer: Can the state offer its employees retirement incentives without their unions’ approval?

Rell’s budget office says yes. The unions say no, and add that they have “deep concerns” about an early retirement program that Rell proposed to cut $65 million from a $726 million deficit projected for the 2010-2011 fiscal year.

The State Employees Bargaining Agent Coalition, a panel of top union leaders that negotiates pension and health benefits for most state workers and retirees, says another retirement incentive program could harm public services, overburden an already-thin work force, and weaken an already under-funded pension plan.

“Any such plan can only be approved through direct negotiations with the coalition’s unions,” SEBAC said in a statement.

“We have no doubt that if we went to a federal court and sought a declaratory ruling” to affirm this position, “we would win,” Hartford lawyer Daniel Livingston, SEBAC’s chief negotiator, added Thursday.

But state government did offer a retirement incentive program without union permission just seven years ago.

According to an Office of Legislative Research report, 4,650 employees retired under the 2003 program, which was open to workers age 52 and older with at least 10 years of experience. Depending upon when they were hired, normal retirement age for most state workers is either age 55 or 60.

At the heart of the disagreement is language in the 20-year contract signed by the state and SEBAC in 1997 that requires health and pension benefits to be negotiated. That deal even spells out a process for the two sides to negotiate any extra retirement incentives.

In addition, Section 5-278 of the General Statutes stipulates that whenever a state law – such as legislation creating a retirement incentive program – conflicts with a labor agreement on “matters appropriate to collective bargaining… the terms of such agreement shall prevail.”

SEBAC challenged the 2003 retirement program before the State Board of Mediation and Arbitration, arguing that while the program expanded benefits to some workers, it also drained dollars from an under-funded state pension program, and increased work burdens for other employees.

Arbitrator Peter R. Blum concluded that the unions’ right to negotiate benefits was impaired by the early retirement program, but that the damage was “reasonable.” He also wrote that the early retirement program, which saved more than $160 million per year, was part of a comprehensive budget deficit-reduction plan and “necessary to serve an important public purpose under the circumstances of the severe fiscal crisis.”

Oddly, both state government and the union appealed Blum’s decision in Superior Court. The state argued the matter was not a proper subject for labor arbitration, while the unions objected to Blum’s conclusion that the 2003 program was legal.

The court ultimately ruled against both sides, affirming the legality of the program but also declaring that retirement incentive programs could be challenged in arbitration.

Both the state and union leaders, dissatisfied with aspects of the arbitration decision and the court case, signed an agreement in 2004 pledging not to pursue further appeals, and more importantly, not to use the cases as precedents in the future.

But were the state to unilaterally offer a retirement incentive again, and were the union to pursue arbitration again, would another arbitrator conclude that the pension fund was too severely depleted, or that the state’s fiscal situation is dire enough?

The legislature’s Office of Fiscal Analysis is projecting a $3.88 billion deficit, a shortfall equal to more than 20 percent of this fiscal year’s budget, for 2011-12. OFA also projects a $725.7 million deficit for the 2010-11 year, which starts July 1. About $65 million in savings from a 2010 early retirement program is part of Rell’s plan to fill that gap.

The governor’s budget director, Office of Policy and Management Secretary Robert L. Genuario, said Thursday that despite that 2004 agreement, the administration still believes the governor and legislature can offer a retirement incentive program without union approval.

But Genuario was quick to add that given the murky legal history surrounding retirement incentive programs, “we believe that the better practice, if it can be accomplished, would be to do this in the way of discussions.”

Rell’s office on Thursday invited SEBAC officials to begin talks about retirement incentives, he said, adding he expects discussions to begin within the next week.

The governor’s relationship with state unions hit the skids in late March after labor leaders said her request for another wage-and-benefit concession package showed “cynical disrespect” to workers.

Rell, who reached a concession deal last year that trimmed wages and benefits and featured other concessions in exchange for a two-year ban on layoffs, asked this time for four more furlough days, deferral of one cost-of-living raise, cancellation of longevity bonuses for senior workers, and the right to impose layoffs under certain conditions.

Legislative leaders had mixed reactions Thursday to the prospect of voting on retirement incentives not supported by union leadership.

Democrats, who traditionally enjoy the support of organized labor in Connecticut, control both the House and Senate, and House Speaker Christopher G. Donovan, D-Meriden, said his staff still is reviewing the retirement proposals to determine if they make sense.

“We are hearing that some departments are already strained from the last retirement plan,” offered in 2009, he said. Rell’s latest proposal estimates as many as 3,000 workers could retire, and only half of their posts would be refilled. “That’s a lot of people. It’s a concern.”

SEBAC wrote in a statement Wednesday that “years of hiring freezes and the 2009 retirement incentive have already left the state dangerously understaffed in core areas such as public safety, health and education.”

But House Minority Leader Lawrence F. Cafero, R-Norwalk, whose caucus also has proposed an early retirement program for 2010, said it’s essential to reduce state government’s nearly 55,000-employee workforce now to allow for agency consolidations that are necessary to balance the next budget.

“There’s nothing in the law that prevents us from enhancing a benefit” to state workers, Cafero said, adding he doesn’t accept SEBAC’s argument that government is understaffed. “I have not read an account or heard an account where the public health or safety of a citizen has been put in harm’s way because we have less state employees.”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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