Gov. Dannel P. Malloy’s administration is in negotiations with state employee unions — but only over how to restructure payments Connecticut owes to its cash-starved employee pension system.
Office of Policy and Management Secretary Benjamin Barnes, the governor’s budget chief, says those talks only involve how the state must save for those pensions — and not any changes in benefits or employee contributions.
Barnes, who disclosed the talks during testimony before the state Spending Cap Commission, didn’t dismiss the prospect of seeking worker givebacks at some future point. But the focus for now, he said, is to craft a plan by February to mitigate pension costs expected to balloon over the next two decades.
This comes seven months after the State Employees Bargaining Agent Coalition rebuffed a Malloy request last March for more broad-based concessions talks.
Though Barnes said details of the talks are confidential, the administration’s goal remains the same as when it first issued a report on spiking pension payments in November 2015.
Connecticut, which has tens of billions of dollars in unfunded liabilities in its pension programs, owes most of that problem to roughly seven decades of inadequate savings habits before 2012.
“Should one decade pay for this failure?” Barnes said, adding that this approach would be unfair. “We should match up the solution to the problem.”
Restructuring pension contributions probably would mitigate spiking payments due over the next two decades but would increase overall pension costs over the long haul. The state eventually would have to catch up on any contributions deferred in the 2020s and 2030s — and also make up for the investment earnings that would have been achieved had all contributions been made on time.
But the alternative, officials say, is to pay a bill Connecticut simply cannot afford over the next two decades.
The administration released a projection nearly two years ago from the Center for Retirement Research at Boston College that showed the nearly $1.6 billion annual contribution Connecticut currently makes to the state employees pension fund could approach $6.6 million by the mid-2030s.
Treasurer Denise L. Nappier, offered projections earlier this year that had annual contributions to the state employee pension peaking between $3.8 billion and $4.7 billion over the next two decades.
But Nappier, Malloy and Comptroller Kevin P. Lembo all have said any of those scenarios would place extreme pressure on state finances. Lembo also supports restructuring pension contributions.
“A (nearly) $7 billion payment, even with a little inflation between now and then, would be brutal,” Barnes said, calling it “suicidal to state government” and likely to force “unsustainable” tax hikes and severe cuts to programs most “near and dear” to the public.
Union leaders have insisted for much of the past two years that the governor and legislators need to boost taxes on wealthy households and major corporations to help stabilize state finances over the long haul.
Hartford attorney Daniel Livingston, SEBAC’s chief negotiator, said labor unions “certainly haven’t changed our views that there needs to be a fairer revenue system.”
Livingston said helping the state to develop “a more sensible pension financing structure,” though, isn’t contradictory to the goal of greater tax fairness.
“We’ve made it clear we were happy to talk to the administration about pension funding,” he said.
Lori Pelletier, head of the Connecticut AFL-CIO and a member of the Spending Cap Commission, said “state employees always have shown they are willing to be partners in resolving these issues.
But Pelletier also said state officials can’t expect this to be the only solution to Connecticut’s budget challenges.
“This can’t be one-sided,” she said.
Barnes had recommended to the Spending Cap Commission that the majority of state pension payments — those contributions made now to make up for inadequate contributions in the past — be exempt from the spending cap.
The commission is expected to recommend a plan next year to the legislature to adjust the spending-cap system.
Sen. Robert Kane of Watertown, ranking GOP senator on the Appropriations Committee and also a member of the spending cap panel, questioned why Malloy never brought this issue before the legislature during the 2016 regular session.
Some Republican legislators have speculated the Democrat-controlled legislature was spared from dealing with the issue this past spring because this is a state election year.
Barnes said the state had not negotiated the necessary changes with the unions in time to have a plan to share with lawmakers last spring.
Sen. Beth Bye, D-West Hartford, co-chair of the Appropriations Committee and a member of the spending cap panel, said, “I am looking forward to a proposal next year from the governor about a fair approach” to resolving the pension issue.