Gov. Dannel P. Malloy publicly warned state employees for the first time Wednesday that his budget proposal for the next fiscal year will rely on wage and benefit concessions to help close a structural deficit of $3.7 billion.

Just two weeks before Malloy must deliver a proposed budget for the fiscal year that begins in July, the governor said the current compensation levels paid to state employees are not sustainable, but he has no agreement for concessions.

Malloy pickets

Last summer, Malloy was in step with labor.

“Have we opened up lines of communication? The answer is yes,” Malloy said. “Will our budget assume a level of success in that regard? The answer is yes.”

For the first time since becoming governor a month ago, Malloy said he did not see state employee pay and benefit levels as sustainable, an assertion likely to jar to his supporters in organized labor.

“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.

He made his remarks to reporters at a press conference after a meeting in his Capitol office with Susan Herbst, the incoming president of the University of Connecticut.

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 today, 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.

Larry Dorman, a spokesman for a coalition of state employee bargaining units, issued a written statement on behalf of the unions.

“Turning around two decades of financial and operational mismanagement at the top of state government is not easy,” Dorman wrote. “Our focus is to work with the administration so that the ideas of front-line public service workers are part of the process. As always, we intend to be part of the solution to getting the state’s economy back on track.”

Dorman 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.”

Union sources said before Malloy’s press conference they have not engaged yet in formal negotiations.

One union source described its contacts with the Malloy administration as “informal discussions,” not detailed negotiations about concession requests or the administration’s intentions regarding spending cuts.

“We’re working to put together suggested savings. At some point in the near future, we’re going to present those savings in a meeting,” the source said. “After that well know better.”

The source would not describe labor’s relations with Malloy as strained.

“We’re not upset yet,” he said. “We might be soon.”

Organized labor contributed to Malloy’s landslide win in the Democratic primary and played a crucial role in his paper-thin victory over Republican Tom Foley in November, helping to turn out larger-than-expected numbers in the Democratic strongholds of Hartford, New Haven and Bridgeport.

One sign of his solidarity with labor was walking a picket line outside a nursing home in Hartford with members of the Service Employees International Union on the day of the primary in August. Malloy frequently said during the campaign that state employees had ideas to save the state money.

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.

For example, the state routinely offers cash incentives during tough economic times to encourage senior workers to retire early, a practice that trims salary expenses in the short-term while stripping the pension fund of assets that would have earned more in interest.

Union leaders suggest reversing the process, offering incentives to workers willing to defer retirement–and thereby spend more years contributing to the pension fund rather than drawing benefits from it.

SEBAC negotiates health insurance and other benefits for more than 45,000 unionized state workers.

Other coalition proposals include:

  • Financial aid and leaves of absence for advanced education to boost workers’ skills.
  • Expanded telecommuting options.
  • Flexible health care spending accounts to allow workers to save wages on a pre-tax basis, sparing state government from paying federal Social Security taxes on those protected savings.
  • Restoring the full operating budget for the Contracting Standards Board, state government’c chief contracting watchdog agency. A legislative panel on budget efficiency agreed with the unions, issuing a report late last year that concluded restoring the board’s annual budget of nearly $1 million would trigger savings of about $37.6 million per year.

Another segment of the coalition’s plan expounds broad concepts about changing government spending to reap long-term economic benefits, rather than specific proposals to save money in the short-term.

Some of these include:

  • Providing free community college tuition and day-care services for Connecticut’s unemployed.
  • Installing “gateway” tolls on Connecticut’s borders and using the revenue to rebuild the transportation infrastructure.
  • Strengthening job apprenticeship programs.
  • Expanding use of health care “pooling,” a concept that involves bulk purchasing of health insurance at a reduced cost for employees of state and local government, nonprofits, small businesses and others.

Still, state employee wages and benefits comprise more than 30 percent of this fiscal year’s $19.01 billion budget. And given the size of the shortfall projected for 2011-12, many legislators from both parties have said they expect union efficiency proposals alone won’t be enough.

SEBAC and Gov. M. Jodi Rell negotiated a concession deal ratified by the unions and state lawmakers in 2009 that saved more than $900 million total spread across the last 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.

The remaining savings stemmed from two sources: deferring payments into the badly under-funded state employee pension account; and increasing pension benefits for senior workers who agreed to retire earlier than planned.

Mark is the Capitol Bureau Chief and a co-founder of CT Mirror. He is a frequent contributor to WNPR, a former state politics writer for The Hartford Courant and Journal Inquirer, and contributor for The New York Times.

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