Analyses show concessions would save $24B over two decades
The tentative concessions framework struck by Gov. Dannel P. Malloy and state employee union leaders would save $4.8 billion over the next five years and $24.1 billion over the next two decades, according to analyses prepared by the administration, Connecticut pension actuaries and its healthcare consultant.
If the concessions deal is ratified, the $1.57 billion annual contribution to the state employees’ pension would rise steadily and peak at just under $1.9 billion in 2022. It would remain at that level through 2031, according to a pension analysis by Cavanaugh Macdonald Consulting of Kennesaw, Ga.
That’s $460 million less than the peak payment Connecticut otherwise would face based on the restructured pension schedule Malloy and unions agreed to back in January.
Connecticut’s worst-funded benefit program — retirement health care — would see its long-term, unfunded liability shrink by one-quarter dropping from $20.9 billion to $15.6 billion, according to an analysis prepared by Segal Consulting of Farmington.
But the concessions plan still would commit Connecticut to offering workers a retirement health care benefit for which the state does not fully save. In other words, Connecticut still would require future generations of taxpayers to cover a significant portion of the retirement health care costs promised to present-day workers.
“These independent analyses affirm that this framework for a labor agreement is a good deal for Connecticut,” said Malloy, who released the reports Tuesday. “Our state’s employee unions came to the table, entered discussions in good faith, and arrived at an ambitious framework that achieves significant long-term savings. Should this agreement be adopted, it will deliver substantial structural reforms that will produce billions in savings for our taxpayers while continuing to provide for essential government services.”
Malloy and union leaders announced a tentative concessions framework on May 23 that reportedly would save $701 million next fiscal year, $869 million in 2018-19, and $1.57 billion over the coming biennium.
The plan would freeze wages for each of the next two fiscal years. Employees, most of whom are working this fiscal year under contracts that expired last June, also would forfeit any retroactive pay hike.
The cumulative three-year wage freeze would provide nearly half of the total projected savings over the next two fiscal years, providing $769 million in relief. Workers would receive 3.5 percent pay hikes in 2020 and in 2021, and also would be eligible for step increases.
State workers would be required to take three furlough days, saving the state another $36 million.
The framework also would double pension contributions for most workers, create a hybrid pension/defined-contribution plan for future employees, increase health care co-payments and premiums, require active workers to contribute more toward their retirement health care benefit, and scale back health care benefits for existing retirees.
The analyses show the pension changes would save just under $440 million in the next two fiscal years combined, while health care changes would save close to $250 million.
In return for these concessions, the state would extend its worker benefits contract — which otherwise would expire in 2022 — until 2027. Unions that grant wage concessions also would be largely exempt from layoffs through the 2021-22 fiscal year.
Those last two provisions, though, remain a huge point of contention. While Malloy’s fellow Democrats in House and Senate leadership praised the deal, the top Republicans particularly were skeptical about whether the concessions’ value was sufficient to offset the five-year extension.
Because Connecticut has one of the worst-funded public-sector retirement benefit programs in the nation, some have argued the state should allow the contract to expire and then dramatically curtail benefits after that.
Senate Republican leader Len Fasano of North Haven has said Connecticut could save more money over the coming biennium, and over future decades, by legislating more significant labor cost-cutting measures.
Fasano unveiled a plan in late May to achieve nearly $2.2 billion in savings over the next two fiscal years.
But it would require officials to:
- Suspend or eliminate arbitration for unionized employees’ wages;
- Replace all overtime with compensatory time;
- Increase worker contributions toward retirement health care and require more service before guaranteeing this benefit;
- And triple all workers’ pension contributions in future years.
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