A recent op-ed by Erik Cafarella propagates popular budget fictions—the same misinformation I heard at a recent Appropriations Committee hearing.
While his op-ed claims Connecticut suffers under a heavy tax burden, a new report from the Center for Public Policy and Social Research at Central Connecticut State University found that Connecticut actually has the lowest business taxes per private sector worker in the region, and the lowest business taxes as a share of state and local taxes in the United States.
If Connecticut legislators continue to bury their heads in the sand, they will deprive Connecticut of revenue, benefiting big banks at the expense of the state’s fiscal health. Connecticut can solve its budget crisis and return the state to economic good health by developing solutions that are based in fact, not fiction.
Fiction 1: Six figure pensions for public workers are common.
They are not. The average rank-and-file public worker pension is $30,000. Six-figure pensions are rare.
Fiction 2: 401Ks are less expensive to fund than pensions (Defined Benefit)
According to the National Institute of Retirement Security (studies conducted in 2008 and 2014), pensions, or Defined Benefit Plans (DB) provide a “better bang for their buck” than 401K, or Defined Contribution (DC), plans. Here is why.
“The new analysis finds that there are three unique drivers of the cost savings. More specifically, DB pensions:
- Pool the longevity risks of large numbers of individuals to provide Americans with stable income that won’t run out in retirement. Said another way, pensions only have to save for the average life expectancy of a group of individuals. Absent a group retirement plan, individuals must save enough on their own should they be among the half of retirees who will live longer than the average life expectancy. This DB pension longevity risk pooling feature generates a 10 percent cost savings.
- Are “ageless” and therefore can perpetually maintain an optimally balanced investment portfolio. In contrast, a typical individual investor must down shift investments over time to a lower risk portfolio of cash and bonds, sacrificing higher investment returns generated from stocks. This DB pension balanced portfolio feature generates an 11 percent cost savings.
- Achieve higher investment returns as compared to individual investors because they have lower fees and are managed by investment professionals. This lower fees and higher returns DB pension feature generates a 27 percent cost savings.”
Fiction 3: Connecticut’s pension problem is the result of the cost of current public worker pension benefits.
The unfunded liability in the pension fund is not the result of current pension benefits. It was caused, as in many other states with pension fund problems, by legislators who 50 years ago failed to make payments into the pension fund. Instead, these lawmakers used the pension payments to fund other projects. That was fiscally irresponsible. The unfunded liability created by those past indiscretions is still with us today. The old pension debt will be paid off by 2032.
Beginning in 2012, Connecticut public higher education employees began transferring from 401(k)s to the Hybrid Plan, which is an employer-matched pension plan. These employees bought into the new plan at full actuarial value. In other words, they paid the full cost of the liability the pension fund was assuming by adding them in.
Let me say that again – public employees paid cash and at full actuarial value to buy into the Hybrid Plan. Some employees did not have enough cash in their 401(k)s or anywhere else to purchase their full number of service years. For example, while I had worked for the state for 19 years, I could only afford to buy 15 years of service.
Corporate Welfare: Connecticut has spent nearly $1 billion on corporate welfare programs with limited oversight
This huge outlay of tax revenue to profitable companies has increased during the same period that lawmakers have supported reductions in essential services. House Bill 7316 would “dramatically expand the level of oversight and transfer some of the duties to monitor and report on the corporate welfare programs to the Office of State Auditors, an independent agency.” State Comptroller Kevin Lembo is a strong supporter of this measure. Taking a closer look at Connecticut’s corporate welfare programs can help solve the state’s budget deficit.
Common Sense: Connecticut’s economy thrives when its citizens have money to spend.
Pensions, both public and private, benefit Connecticut’s economy by supporting jobs and generating purchasing power in communities. In Connecticut in 2014, state and local retiree spending alone “supported 33,792 jobs that paid $1.9 billion in wages and salaries, $5.4 billion in economic output, and $1.3 billion in federal, state, and local tax revenues.
Each dollar paid out in pension benefits supported $1.31 in total economic activity in Connecticut. Each dollar ‘invested’ by Connecticut taxpayers” in state and local pension plans “supported $3.41 in total economic activity in the state.” If Connecticut is to thrive economically, lawmakers must work together across party lines to find solutions based in fact rather than propose fictional solutions. Every hard-working Connecticut resident – public or private sector – deserves a dignified retirement. Connecticut can rise to the top of the economic ladder by working to attain a state where all retirees and workers have the wherewithal to contribute to the state’s economy.[4]
Anne Dawson lives in Lebanon. She is Department Chair and Professor of Art History at Eastern Connecticut State University. She is a former AAUP Council representative and former member of the Connecticut Committee for Equity in Retirement.