Labor savings is the big unknown in Malloy’s new budget

Keith M. Phaneuf / CTMirror.org

State employees rally outside the Capitol last March to protest threatened layoffs and requests for givebacks.

The new budget Gov. Dannel P. Malloy will propose Wednesday will be based partly on a big assumption — that ongoing talks with state employee unions will produce concessions.

And while the outcome of those discussions could significantly affect the next two-year budget, Republican legislative leaders and others also are watching closely to see if any such deal would lock the state into its current worker benefits system beyond the current 2022 expiration date.

Officials for both the Malloy administration and the State Employees Bargaining Agent Coalition (SEBAC) have acknowledged publicly in recent months that the two sides have held discussions about worker-related issues.

And Malloy and his budget director, Ben Barnes, have made no secret they believe pension and health care costs are unaffordable and need to be reduced.

Sources close to management and labor both say a tentative deal won’t be struck before Malloy presents his budget for the next two fiscal years to the General Assembly on Wednesday.

That’s nothing new.

Tentative agreements on each of the last two concessions deals — Gov. M. Jodi Rell’s in 2009 and Malloy’s in 2011 — were not reached until the spring.

What the governor does in anticipation of such an agreement is build a savings target into the budget. For example, Malloy anticipated $1 billion in annual concessions savings when he delivered his first biennial budget proposal in February 2011.

But because concessions are not a sure thing, the administration also is expected to develop an alternative scenario to achieve savings.

The governor has said he won’t “negotiate through the press” or disclose publicly what he is discussing with labor.

But Malloy and Barnes both have said that without concessions, Connecticut’s budget picture gets grim. Nonpartisan analysts say state finances, unless adjusted, will run $1.4 billion in deficit next fiscal year and $1.6 billion in the red in 2018-19.

Barnes told The Mirror in December that reductions in municipal aid, social services and higher education were likely to help close those gaps without major tax hikes, and pressure on these areas almost certainly would worsen without concessions.

Union leaders have said workers consistently have stepped up to protect government services, but state officials should be considering higher taxes on wealthy households and corporations.

Mark Pazniokas / CTMirror.org

Lori J. Pelletier, president of the AFL-CIO

And Lori Pelletier, president of the Connecticut AFL-CIO, added last week that while “there’s conversations going on” about how workers can help, “that’s not the first place we need to go. We need to look at other issues that are happening in state government.”

Besides seeking more from the wealthy, state government also needs to cut back on economic development grants, business subsidies, and state agency spending on private consulting and other service contracts, labor leaders say.

Should benefits contract expire in 2022?

The governor’s anticipated labor savings target also should spark another debate at the Capitol: Should state government extend its controversial benefits contract with all employee unions.

The state negotiates wages and working conditions separately with each bargaining unit, but health care and retirement benefits are bargained collectively between the administration and SEBAC.

That package has been a point of contention since 1997, when Gov. John G. Rowland and unions struck a 20-year deal.

Many critics have argued the pension and retirement health care components of that deal are too generous, and that it must be allowed to expire so the state can offer alternatives, such as a 401(k)-style, defined contribution plan.

Malloy’s 2011 deal with unions extended the benefits contract through 2022 in exchange for a two-year wage freeze, new restrictions on retirement benefits, increased worker cost-sharing, and an employee wellness plan.

But as surging retirement benefit costs place even more pressure on state finances, some groups came forward recently to urge that any new concessions deal not extend the benefits contract further.

“The only thing that is going to change the course of this state and the financial difficulty we are in is real structural change, and we haven’t made that yet,” said House Minority Leader Themis Klarides, R-Derby. “It is not affordable and not sustainable to keep the (benefits) package that we have.”

Senate Republican President Pro Tem Len Fasano of North Haven, who also has been pressing for further reductions in benefit costs, also cautioned strongly against extending the SEBAC deal beyond 2022.

Fasano said he believes many unionized state employees would understand the necessity of these changes if they stabilized the budget and helped avoid worker layoffs in the future.

“If we say, ‘Hey look, we’ve got a holistic approach to this problem,’ it makes sense for everybody,” he said.

CTMirror.org file photo

State employee union officials celebrate ratification of the 2011 concessions deal.

But the unions sought an extension of the benefits deal during the 2011 negotiations. And labor leaders have said Connecticut should lead by example and offer a strong benefits package.

And according to analyses of the state employees’ and municipal teachers’ pension systems prepared by Center for Retirement Research at Boston College, the pension costs tied to current Connecticut employees and teachers both are below the national average for state employees.

The primary reason retirement benefit costs are surging is because these programs were inadequately funded over the previous 70 to 80 years.

For example, more than 80 percent of the required pension payments this fiscal year are to compensate for contributions not made or investment returns not achieved in the past.

But Peter Gioia, chief economist for the Connecticut Business and Industry Association, said state government should be very cautious before extending the benefits contract. Though that is five years away, the state at least has the legal flexibility to restructure benefits in the not-too-distant future, he said.

“I think we’ve got to realize what choices we have, and increasing taxes is not one of them,” Gioia said,

The CBIA has urged state officials to revisit six reports prepared in 2010 and 2011 by a business coalition known as The CT Institute for the 21st Century. The coalition outlined strategies to cut state spending by hundreds of millions of dollars in total spread across several areas, including reductions in public-sector benefits. These strategies, many of which would take several years, also involved prisons, long-term heath care, public-sector benefits, and use of technology to deliver public services.

The Yankee Institute, a conservative public policy group based in Hartford, also urged a concessions deal that doesn’t prolong the current benefits system.

“It is exactly this kind of straitjacket that got us into a cycle of tax increases and billion-dollar deficits,” said Carol Platt Liebau, president of the institute. “Guaranteeing long-term benefits is a recipe for taxpayer uncertainty and fiscal chaos. … There is far too much uncertainty today to make promises into the next decade.”

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