Malloy says Connecticut’s long-term debt outlook has improved
Gov. Dannel P. Malloy tried to get a leg up Thursday in the ongoing partisan debate over the state’s long-term debt.
While the Democratic governor has taken heat for increased borrowing, the administration released a new report showing that reforms he implemented against worker retirement benefits will save far more in decades to come.
Malloy’s Republican critics countered that those reforms also will cost the state more after the next gubernatorial election, when a significant budget deficit already awaits.
“It won’t happen overnight, but we are taking the steps we need to pay down debt and shore up the state’s long-term fiscal health,” the governor wrote in a statement. “We are tackling our long-term debt in a responsible way while making bold, necessary investments needed to help create jobs and grow our economy.”
The state’s bonded debt, which tops $20 billion, is higher than the $19.5 billion level it had reached before Malloy’s predecessor, M. Jodi Rell, left office in January 2011.
Senate Minority Leader John P. McKinney, R-Fairfield, a gubernatorial candidate, blasted Malloy for much of 2013, arguing that bonding had reached irresponsible levels.
The state typically sells bonds on Wall Street to finance transportation infrastructure improvements, municipal school construction, building projects at state colleges and universities, economic development programs, and smaller community-based projects usually sought by legislators.
And while the administration has defended its bonding track record, arguing it has focused projects that would preserve or create jobs, Malloy said Thursday afternoon that he ordered the report because some media coverage of the debate has lacked perspective. What’s been missing, the governor told reporters, is the progress his administration has made curtailing debt in another category.
This involves the long-term costs of the state’s contractual obligations to pay retirement benefits to state workers and public school teachers.
The new report shows that the state’s unfunded liabilities for retiree health care have fallen dramatically.
Before Malloy took office, analysts estimated the state would need to find another $31.2 billion over the next three decades to meet this retirement health-care obligation.
But because of several changes ordered in the 2011 concessions agreement Malloy reached with state employee unions, that unfunded liability has been cut nearly in half, down to $16.2 billion.
And while the long-term liability for the state employee pension system has grown — in part due to a surge in state employee retirements in 2011 — the Malloy administration has reformed that fund as well. Over the past two years the state has increased contributions to the fund and scaled back inflated assumptions about likely investment earnings for the fund.
“We did some other very important things,” the governor said. “What they were doing in the past wasn’t right.”
When both bonded debt and unfunded obligations tied to health care, pensions and other retirement benefits are considered, the overall debt picture has improved, the report concludes, falling from $76.2 billion pre-Malloy administration to $64.6 billion.
That 2011 concessions deal requires employees to work longer before they can retire with full benefits and contribute more of their pay to fund retirement health care. It also makes other changes to reduce the state’s prescription medication costs.
But while it also requires the state to match the workers’ contributions toward retirement health care, it delays that match until July 1, 2017.
In other words, the state’s projected, long-term costs to provide retirement benefits have been reduced, but the Malloy administration hasn’t figured out yet how to pay for all of them.
The administration estimates it will cost just under $130 million per year to begin matching workers’ contributions in July 2017.
But nonpartisan legislative analysts already say there is a $1.1 billion hole built into the first state budget after the 2014 gubernatorial elections -– a gap largely created by Malloy and the legislature who deferred several expenses until mid-2015.
“The Malloy administration’s report on debt is a complete work of fiction,” McKinney said in a statement issued to reporters. “As Governor Malloy once said in describing budget gimmicks when he was a candidate, ‘it fools only those who want to be fooled.’”
“By July 1 of this year Connecticut’s debt levels will be $1 billion higher than before,” said Rep. Vincent Candelora, R-North Branford, a member of the legislature’s Finance, Revenue and Bonding Committee. “Changing the fiscal and budget assumptions, and clinging to specious promises to reduce future debt years off do not alter the cold hard facts: We are borrowing more now at the expense of future generations than we ever have before.”
House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said he found it “somewhat hypocritical” of Malloy to repeatedly downplay nonpartisan estimates of a post-election state budget deficit — by arguing there’s plenty of time to address them — while he emphasizes savings his retirement benefits are projected to yield over the next several decades. “It’s classic Malloy.”
Malloy fired back Thursday afternoon that Republican legislators largely were silent when his his two GOP predecessors employed fiscal gimmicks that weakened savings for retirement programs — gimmicks that now are costing the state hundreds of millions of dollars eacn year.
“I’m proud of my record,” the governor added. “I’m not sure they should be proud of theirs.”
The governor suggested it is in the interest of the Republican minority to see a cloud around every silver lining in 2014, when Malloy and every member of the General Assembly are up for re-election.
“I think Connecticut Republicans would pray for clouds on a sunny day,” he said.
Gov. Malloy’s budget office report.
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