Negotiators for Gov. Dannel P. Malloy and state employees talked into the early hours Tuesday without reaching a deal to lower the state’s labor and retirement costs, leading the administration to begin to issuing layoff notices. But both sides said they remain optimistic about reaching a deal.

Spokesmen for Malloy and the unions told reporters that the talks will continue, despite the drama of the first of 4,742 layoff notices going out by the administration. It appears the notices will go out in a trickle, giving negotiators time to conclude their talks well before it is known who is targeted for a layoff.

“We’re going to keep talking as long as we can,” said Larry Dorman, a spokesman for the unions.

Roy Occhiogrosso, the senior adviser to Malloy, said the administration has the same posture.

In their earlier statements, both sides signaled disappointment in the failure to conclude the talks overnight.

“After more than two months of talks, I’m afraid that my administration and the state employee unions have not reached agreement,” Malloy said in a statement issued at 8 a.m. “Our talks have been respectful and forthright so far, and I remain willing to continue the discussions if the unions are willing to do so. However, we must all be willing to work toward a settlement that Connecticut taxpayers can afford in the long run.”

The State Employees Bargaining Agent Coalition posted a statement on its website saying they also will attempt one final day of negotiations: “The discussions have been extraordinarily complex and demand our continued efforts to find mutual resolution.”

“SEBAC is disappointed the administration has decided to begin issuing layoff notices. We have said time and again that laying off workers, whether in the public or private sector, and slashing vital public services will prove disastrous to our shared goal of creating jobs and rebuilding the middle class – especially at a time when our 9.1% unemployment rate is already higher than the national average,” the union said.

Malloy, whose full statement is available on his web site, said he has no choice but to begin the layoff notices if he is to have the flexibility to reduce the workforce soon after the new fiscal year begins July 1. Without the labor concessions and savings, the budget approved last week by the legislature has a $1 billion shortfall.

“We need to cut an additional $1 billion in spending in order to balance the budget in each year of the biennium, because I refuse to raise taxes beyond what has already been agreed to. We held off on any layoff notifications while we tried to complete a deal over the weekend and on Monday night. Unfortunately, absent an agreement and in order to comply with contractual notice requirements and the provisions of the budget agreement signed last week, we need to begin those notifications today,” Malloy said.

Malloy said notices will go out to 4,742 employees, the number he shared with legislative leaders last week. The administration says the layoffs will save $455 million, with another $545 million coming in other spending cuts.

“I want to be clear that this is not the road I wanted to go down. I didn’t want to lay people off, and I didn’t want to make additional spending cuts beyond the $780 million in spending we’ve already cut,” Malloy said. “But I have no choice. I promised the people of Connecticut that I would change the way we do business in Hartford. I promised to deliver a budget that is balanced with no gimmicks, and I will.”

Neither Malloy nor labor has specified the sticking points in their talks, but sources say retirement age remained an issue. Malloy in his statement said he is seeking immediate and long-term savings.

“The savings we are seeking to achieve with our state workforce are predicated on two principles: We need to achieve the short-term savings necessary to balance this budget, and we need long-term, structural savings in order to make state government sustainable,” Malloy said. “To do so, I am attempting to bring the benefits enjoyed by state employees — wages, healthcare, and pension benefits — more in line with those enjoyed by their counterparts in the private sector and in the federal workforce.

“The state employee representatives have thus far not offered enough.”

On Monday, allies of labor at the Capitol said their sense was that talks were going well.

Union negotiators returned to the Office of Policy and Management at 10 p.m. Monday after hours of consultation with representatives of the 15 unions in State Employees Bargaining Agent Coalition about the administration’s latest offer. Mark Ojakian, the deputy secretary of OPM, is Malloy’s lead negotiator.

“It’s going to be a long night,” Matt O’Connor, a spokesman for the coalition of state employee unions, had said Monday night.

Both sides have imposed a news blackout, but O’Connor said the talks resumed after a lengthy briefing by the unions’ lead negotiator, Dan Livingston. The union leaders intended to remain available in Hartford should the negotiators emerge with a potential agreement.

The union leaders’ decision to remain nearby seemed to point to optimism that a tentative agreement could be reached over night, but O’Connor declined to describe the mindset of the union negotiators or leaders, other to say they are aware of the clock.

“Folks are very mindful of deadlines and the possibility of layoff notices going out tomorrow,” O’Connor said.

At midday Monday, Malloy had declined to cite a precise deadline.

“They know the deadline. I know the deadline,” Malloy said of the unions.”There’s not a lot of time before we have to start to do things.”

Those things include layoff notices, originally planned for last week, that would allow the administration to cut the workforce soon after the start of the fiscal year on July 1 if the concession talks fail to yield a significant portion of the $1 billion in savings demanded by Malloy.

The close consultation of the unions’ leaders by their negotiators are the latest sign that the talks are focusing on a shrinking number of contested issues. Sources who have talked to individuals briefed on the negotiations say, not surprisingly, that retirement age remains a sticking point.

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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