Malloy budgets for big raises yet seeks union concessions

While most details of Gov. Dannel P. Malloy’s budget proposal have been dissected repeatedly since he unveiled it five weeks ago, one still-looming question could have a huge impact on state finances for many years.

Why does that two-year budget include $800 million for state employee raises — an amount that far exceeds anything Malloy set aside before and doubles the funding his staff estimated was necessary just five months earlier?

The answer to that question is crucial given that:

• Malloy is seeking $1.6 billion in union concessions to close major deficits in the next two-year state budget.
• Connecticut may have to extend a controversial benefits contract — guaranteeing pensions and retirement health care to workers — to get those concessions.
• And the value of raises workers might surrender is vitally important to those who instead want to end pensions and other retirement benefits by allowing that contract to expire in 2022 — the last year of the next gubernatorial term.

Proposed funding for raises doubles earlier estimate

Most funding for raises in the new budget is included in the Reserve for Salary Adjustments (RSA) —  a line item commonly used to cover raises that might be awarded after the budget is adopted.

Malloy recommended $317.1 million in the RSA for 2017-18, and $484.5 million for 2018-19, a total of $801.6 million for the biennium.

That total does include some back pay owed to workers.

Most unions agreed in the summer of 2011 to a concessions plan that froze wages in 2012 and 2013, and then fixed raises at 3 percent in 2014, 2015, and 2016.

Most unionized employees have been working in the 2017 fiscal year under that expired deal. The next state budget has to include pay hikes for the 2017 fiscal year as well as for 2018 and 2019.

“The RSA increase in FY 2018 vs. FY 2017 reflects a budgeting assumption that any future wage increases would be roughly consistent with average increases in prior contracts and would be retroactive to FY 2017,” said Chris McClure, spokesman for the governor’s budget office.

In fact, the first three biennial budgets of Malloy’s administration don’t recommend RSA funding close to the levels in his latest plan, even considering the back pay that is owed.

Malloy recommended a total of:

• $242.7 million to cover the 2012 and 2013 fiscal years; (This would later not be needed when unions agreed to a two-year wage freeze.)
• $111.4 million to cover the 2014 and 2015 fiscal years;
• $153.4 million to cover the 2016 and 2017 fiscal years.

The $802 million Malloy proposed in his new two-year plan is nearly five times the size of the 169.2 million average recommendation from his first three biennial budgets.

More importantly, Malloy’s budget director, Ben Barnes, estimated $390 million would be needed for collective bargaining increases in the upcoming biennial budget  — less than half of the $802 million eventually proposed — in a memo shared with agency heads on Sept. 6, just five months before the governor’s budget was released.

So if Malloy asks unionized workers to accept another two-year wage freeze — as he did in 2011 — would state government really save $802 million or $390 million?

The answer could make a big difference to those who aren’t sure whether another concessions deal is worthwhile from the state’s perspective, if it means extending a controversial benefits contract.

Pensions for new state workers could end after 2022

“We are not starting from scratch when we revisit the SEBAC (State Employees Bargaining Agent Coalition) contract,” Malloy told legislators on Feb. 8 in his annual budget address. “While it is fair for us to ask for savings, it’s equally fair for our employees to also ask for changes as long as the end result is a more affordable and more sustainable labor agreement.”

The governor is asking workers to grant concessions that would save $700 million next fiscal year, and $869 million in 2018-19. Administration officials have said they hope at least to have a tentative deal in place by May.

When Malloy negotiated a concessions deal with unions six years ago, their chief demand was that the state extend the benefits contract that requires it to offer a pension and retirement health care to nearly all full-time employees.

Though pensions and retirement health care benefits go back many decades, most details of the current system were set in a 20-year contract struck in 1997 between the unions and Gov. John G. Rowland.

The system remained, with new restrictions, following concessions deals negotiated in 2009 by Gov. M. Jodi Rell, and by Malloy in 2011. In exchange for that last deal, Malloy added five years to the SEBAC deal, pushing the expiration date to 2022.

But as new projections show surging retirement benefit costs — caused by more than 70 years of inadequate funding — will plague state finances for the next 15 to 20 years, there have been increased calls to let the current retirement benefit system expire.

Union leaders say past concessions deals have reduced the generosity of those retirement benefits considerably. A 2015 study by the Center for Retirement Research at Boston College found the pension benefits offered to new state employees are close to the average benefit offered by other states.

Business groups including the Connecticut Business and Industry Association and the MetroHartford Alliance have said legislators should replace pensions with 401(k)-style, defined contribution plans.

Similarly recommendations have been made by conservative public policy groups such as The Yankee Institute in Hartford, and by Republican legislators.

And while GOP lawmakers also have pressed Malloy for the past three years to seek another round of concessions, some also have questioned whether the days of offering pensions and retirement health care should end.

“Our biggest concern, overall, is the potential extension of the current SEBAC agreement,” House Minority Leader Themis Klarides, R-Derby, told The Mirror. “… The whole key to our state’s future fiscal well-being is tied to that issue, and what concessions the governor might obtain in return.”