House Speaker Joe Aresimowicz is ready to talk about delaying the one tax cut no other officials have been discussing — at least publicly.
The speaker told The Mirror this week that while income tax breaks for retired teachers over the past two years were a good idea, Connecticut cannot afford to expand it even further next year.
Retired teachers received an income tax cut worth $12 million in the spring of 2016. And its value grew to $21 million this April.
But given the state’s huge fiscal crisis, Aresimowicz, D-Berlin, said Connecticut has to reconsider the additional $8 million earmarked for retired teachers next April.
“I don’t think we can afford another tax cut for teachers right now,” he said.
State finances, unless adjusted, are projected to run as much as $2.3 billion in deficit next fiscal year, a gap of 12 percent. And the potential shortfall reaches $2.8 billion or 14 percent in 2018-19.
Those projections are due largely to two factors: rapidly eroding income tax receipts and surging retirement benefit costs. The latter includes a $1 billion annual contribution to the teachers’ pension fund that is slated to rise 33 percent over the next two fiscal years.
Gov. Dannel P. 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.
The measure exempted 10 percent of teachers’ pensions from the state income tax in returns they filed last spring. It grew to 25 percent this year. And next April, unless changes are made, the exemption will reach 50 percent and be worth close to $29 million per year.
Aresimowicz said there is merit to exempting retirement earnings from state income taxes. But he quickly added that lawmakers have had to defer many good tax policy decisions because of the huge budget challenges.
Since 2014, Malloy and lawmakers have deferred previously approved tax relief for the working poor, shoppers, single income-tax filers, corporations, and insurance companies.
Over the same period they also have reduced the $500 property tax credit within the income tax — which is aimed at middle-class households — to $200, and are considering proposals to reduce it further or eliminate it entirely.
Though neither Malloy, nor other legislative leaders have proposed delaying tax relief for teachers — generally recognized at the Capitol as a powerful lobby — Aresimowicz said he believes there are others willing to discuss it once a conversation has begun.
“I know there is some support among Republicans and the administration,” the speaker said.
The executive director of the Connecticut Education Association, Mark Waxenberg, said earlier this month that retired teachers might be willing to forego the third installment of the income tax cut, 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.”
But the president of the Association of Retired Connecticut Teachers, Ed 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.
Creating more affordable pensions for teachers
Advocates for cities and towns challenged state officials earlier this month to consider scaling back some benefits for teachers, given the cutbacks municipalities may be facing.
Malloy has proposed billing cities and towns for $400 million annually to help cover teachers’ pension expenses.
And several legislators have recommended deep reductions to municipal aid, including eliminating entirely a sales-tax revenue-sharing program that is supposed to send $340 million to communities next fiscal year.
Given these proposals, municipal advocates also have said state officials should consider establishing a reduced, less-costly retirement benefit system for future teachers.
“That discussion will come,” Aresimowicz said. “And I wouldn’t be surprised if it comes this year.”
But the speaker quickly added that doesn’t mean eliminating pensions entirely.
Aresimowicz said he believes all workers, including private- and public-sector, “should be able to retire with dignity and respect.”
And the best way to achieve that with financial security, he added, is a multi-tiered system that includes personal savings and a pension.
Teachers note they don’t receive Social Security in Connecticut. Municipal advocates respond they receive a pension 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.