State officials are considering shifting hundreds of millions of dollars in skyrocketing teacher pension costs onto municipalities — but not providing options to reduce those costs.
Similarly, they are weighing deep cuts in local grants, but not delaying the third consecutive income tax cut for retired teachers in the past three years.
Some municipal leaders have begun to ask why?
“They’ve finally recognized that the pension system is an unsustainable system — unsustainable to the Connecticut taxpayer,” Connecticut Conference of Municipalities Executive Director Joe DeLong said. “But they haven’t done anything but shift the burden, and onto a property tax system that already is not competitive.”
“For more than 70 years, the state has chronically underfunded the Teachers’ Retirement System, resulting in staggering increases in the amount the state is required to contribute to the system to address unfunded pension liabilities,” said Betsy Gara, executive director of the Connecticut Council of Small Towns. “… Given the size of the problem, saddling towns with any portion of teachers’ pension costs will devastate property taxpayers. Instead of shifting millions of dollars of teachers’ pension costs onto towns, the state should act now to reform the teachers’ pension system to rein in costs, including creating a tier for new hires.”
Looming teacher pension bill is huge
The potential cost shift that has cities and towns worried is massive.
Arguably the most volatile line item in the state budget, Connecticut’s annual contribution to the municipal teachers’ pension fund could grow sixfold between now and the early 2030s, according to a 2015 study prepared by the Center for Retirement Research at Boston College.
This and other retirement benefit programs suffer from more than 70 years of inadequate state funding.
That means the current $1 billion annual contribution could top $6.2 billion by 2032. Over the next two fiscal years alone, it will grow more than 33 percent, surpassing $1.3 billion annually.
Along with eroding state income tax revenues, dramatic increases in the teacher pension and in other retirement benefit programs are the major factors behind deficit projections as high as $2.3 billion next fiscal year and $2.8 billion in 2018-19.
These potential shortfalls, which represent 12 and 14 percent of all General Fund spending, respectively, are the largest since the last recession.
Given this problem, Gov. Dannel P. Malloy wants cities and towns to own one-third of the teacher pension bill, permanently.
Pension bills totaling more than $400 million in each of the next two fiscal years would be daunting enough, local leaders say. But one-third of a $6 billion-plus contribution — more than $2 billion, or the equivalent of the entire present Education Cost Sharing grant program — would shatter the local property tax base, they say.
“We would have to cannibalize our own programs,” Newtown First Selectwoman Pat Llodra said during a press conference earlier this spring. “This is simply a tipping point to disaster.”
Coventry Town Manager John Elsesser, former COST president, said he’s done the math and projects his town would have to dedicate 11 to 12 percent of its entire annual budget to such a bill.
CT employee pensions reduced three times
But Elsesser and others also are questioning why neither Malloy nor top legislators from either party have proposed any steps to curb teacher pension costs in the future.
Connecticut has four tiers of retirement benefits for state employees, scaling back pension and retirement health care in the mid-1980s, in 2009 and in 2011.
And Malloy and state employee unions struck a deal earlier this year to restructure payments into that pension program, deferring $14 billion to $21 billion in contributions until after 2032.
Local leaders questioned why there is no proposal for a reduced tier of benefits for teachers hired a few years from now, after existing local contracts with teacher unions have expired.
“I don’t think any one class of employees, public or private, should be immune,” Elsesser told The Mirror during an interview last week. “… So why should one class of taxpayer-funded government employees get a break?
Republican legislative leaders have said repeatedly in recent years that “structural change” is needed to curb public-sector labor costs. Last year the GOP proposed ending all collective bargaining for benefits for state employees after the current benefits deal expires in 2022.
The teachers’ unions have long been recognized as a key part of the Democratic base, and legislators from that party long have steered clear of the teacher pension issue.
Still, lawmakers from both parties endorsed the governor’s proposal for another round of concessions from state workers, talks Malloy hopes will yield savings worth $1.57 billion over the next two fiscal years combined.
Should future teachers get less in benefits?
So should Connecticut take steps now to reduce teacher pension costs, by whatever amount possible, over the next 15 to 20 years?
“I may have a little soft heart for teachers,” Senate Republican leader Len Fasano of North Haven said. “I just believe that teachers in society today seem to have a greater responsibility to the development of society. That is to say, in many cases, teachers are raising many of the kids that they teach. They are psychologists, they are dietitians, they are mentors, they’re moms, they’re dads, they got all of the reporting. And somewhere along the line they’ve got to teach a course or two. I don’t think they’re paid an exorbitant amount of money. So I have a certain amount of tenderness toward what we’re asking teachers to do.”
With that qualification, Fasano added that “everything’s got to be looked at, but that would not be anywhere on my top list.”
Other top legislative leaders also said they wouldn’t rule anything out, given the scope of the deficit. But no one tackled the question of why it never has been addressed before.
“The short answer is ‘yes,’” House Speaker Joe Aresimowicz, D-Berlin, said when asked whether towns’ suggestion of a new retirement tier for teachers should be considered. “Everything needs to be on the table. There’s still a (fiscal) cliff coming.”
“That hasn’t been explored in any detail, but I think at this point we have to be open to looking at that,” Senate President Pro Tem Martin M. Looney, D-New Haven, said.
“I think any of those changes are things that need to be on the table,” House Minority Leader Themis Klarides, R-Derby, said.
But Malloy, who has had an on-again-off-again relationship with Connecticut’s teacher unions, disagreed.
“Teachers, who typically are not eligible for Social Security, rely on this program for their retirement income, and we should be very careful if we even consider any benefit or tax changes,” Chris McClure, spokesman for the governor’s budget office, said.
Teachers’ pensions vs. Social Security
But town leaders say that while municipal teachers don’t receive Social Security, they instead receive a pension benefit that is far superior.
According to the legislature’s nonpartisan Office of Fiscal Analysis, the average pension awarded to a Connecticut teacher retiring in 2016 was $59,364.
The average drops to $45,709 for teachers who took early retirement in 2016.
By comparison, the average Social Security benefit awarded in Connecticut stood at $1,477 per month in 2016, or $17,712 for the year, according to the Social Security Administration.
Still, the president of the Association of Retired Connecticut Teachers, Ed Messina, said scaling back benefits for future teachers could lead to a shortage. “It makes teaching less desirable, and teaching is very tough these days.”
Mark Waxenberg, executive director of the Connecticut Education Association, said the key to fixing the teachers’ pension fund is to restructure payments as was done with the state employees’ pension.
But Connecticut has a legal opinion saying it cannot do this while it is still paying off $2 billion borrowed in 2008 to shore up the teachers’ pension fund. And that debt isn’t expected to be repaid until the early 2030s.
“I think we have to re-examine the bond counsel’s rationale,” Waxenberg said. “If there is any ability to smooth out those (spiking) payments over time, we need to look at that.”
Jan Hochadel, president of AFT-Connecticut, also argued against any reduction in retirement benefits for future teachers.
“Any short-term relief that local towns may be able to reap by weakening the teaching profession will be lost when the consequences come home to roost,” she said. “ … First, there’s the mid-term impact on students resulting from a shortage of classroom teachers as young people leave the profession or decide against a career in education. Then, there’s the long-term impact on small businesses and taxpayers when retired teachers are not able to spend their dollars in local economies.
“Either way, the residents of local towns and cities will end up shortchanged — and they deserve better.”
Three income tax cuts for retired teachers
Some local leaders also questioned why no one has proposed delaying what would be the third state income tax cut in three years for retired Connecticut teachers, given the state’s fiscal crisis.
Malloy, who ran afoul of teachers’ unions in 2012 when he proposed changes to the tenure system, proposed and secured approval for a multi-tiered income tax cut for retired teachers in 2014 — a move his Republican critics called an election-year stunt.
The measure exempted 10 percent of teachers’ pensions from the state income tax in the returns they filed last spring, saving them $12 million, according to nonpartisan analysts. It grew to 25 percent this year, and is worth $21 million.
Next April, unless changes are made, the exemption will reach 50 percent and be worth close to $29 million per year.
Connecticut does exempt 75 percent of Social Security from the state income tax and the Finance, Revenue and Bonding Committee did recommend exempting 100 percent, which would cost the state an extra $24 million annually.
But legislators from both parties have acknowledged that recommendation may not survive this year given the fiscal crisis.
Similar to the issue of a new pension tier, legislative leaders said deferral of the teachers’ pension break needs to be on the table, while the governor said it should not be delayed.
Messina cautioned that delaying the next tax break for retired teachers could encourage more of them to leave Connecticut. “Many states don’t tax pensions at all, and 26 percent of the checks from the teachers retirement board already are going out of state,” he said.
But the head of the CEA said retired teachers might be willing to forego an income tax cut for the third year in a row, providing Malloy and legislators ask all taxpayers to sacrifice.
“It would be very selfish of me to say ‘everybody but us,’” Waxenberg said. “I think teachers are willing to take up an oar if everybody else is willing to do the same.”