If legislators vote on a new state budget Thursday, it may include a complex proposal from Gov. Dannel P. Malloy to restructure skyrocketing contributions to the teachers’ pension program — potentially inflating and then shifting billions of dollars in expenses onto a future generation.

But if the plan is incorporated into the budget, that would mark the first time many legislators hear about it.

The Malloy administration has been warning for years that Connecticut must address massive unfunded liabilities caused by more than seven decades of inadequate savings, and says there is no reason to delay.

But the proposal was not raised in bills, public hearings or budget proposals during the 2017 session or earlier this summer.

But given that, the fact that the proposed cost-shift would not happen immediately, and that billions of dollars are at stake, Republican legislators say lawmakers shouldn’t be rushed into voting on the Democratic governor’s plan.

Malloy spokeswoman Kelly Donnelly confirmed Wednesday that the administration wants to change a schedule that has the state’s annual pension contribution skyrocketing — according to one report — by more than 500 percent over the next 15 years.

Connecticut’s annual payment, which stood at $1 billion last year, could top $6.2 billion by 2032, unless adjustments are made.

Full details of the proposal were not available Wednesday, but Donnelly said the administration’s goal is to change the scheduled payments while preserving rules established in 2008 to prevent further short-changing of the teachers’ pension.

The state Teachers Retirement Board, which administers pension benefits and sets return goals for pension investments, also would play a role in deciding whether to restructure contributions.

The $1 billion contribution the state made to the pension fund last year is slated — according to a study prepared for the state in 2014 by the Center for Retirement Research at Boston College — to skyrocket over the next 15 years, potentially topping $6.2 billion by 2032.
According to a 2015 study Malloy commissioned from the Center for Retirement Research at Boston College, annual contributions to state employees’ and teachers’ pensions were at risk to more than quadruple by the early 2030s because of decades of poor savings by governors and legislatures dating back to 1939.

State employee unions, Malloy and the legislature agreed in early February to reduce total payments into the state employees’ pension between now and 2032 to mitigate a projected spike. Annual contributions into that fund also were expected to top $6 billion in the early 2030s.

But that shift came with a cost.

When the state contributes less, that limits the treasurer’s ability to invest pension resources and grow the fund.

The deferred contributions and lost investment opportunities involving the state employees pension would shift a projected $14 billion to $21 billion in extra costs to taxpayers between 2032 and 2046.

CT pledged not to short teacher pension fund

Connecticut doesn’t have the same legal flexibility, though, to restructure payments into the teachers pension.

That’s because the state borrowed $2 billion in 2008 to shore up the teachers’ pension and pledged to its bond investors not to short-change pension contributions for the life of the 25-year bond issuance.

In other words, if the state wants to pay less into the teachers’ pension than fund actuaries recommend — with a very limited exception — it needs to pay off the bonds first.

The state’s bond counsel, Day Pitney of Hartford, spelled this out in an opinion provided in late April 2016. And state T reasurer Denise L. Nappier has said she agrees.

The administration did not release details on how it would resolve the outstanding bond debt.

So do legislators have time Thursday to review and debate a very difficult two-year state budget plan and a complex pension arrangement — with billions of dollars at stake?

Donnelly said the administration can handle both issues at the same time.

“We are certainly capable of taking on complexity,” she said. “We have spent considerable effort evaluating our options, working with actuaries, and achieving consensus with stakeholders.”

But GOP leaders said there’s no way the legislature could properly assess the Democratic governor’s proposal in a few days — or perhaps even a few hours.

“The possibility that the legislature might take up this complicated change to the teachers’ pension plans involving billions of taxpayer dollars at this juncture is astounding,” House Minority Leader Themis Klarides, R-Derby, said. “We are dealing with the current budget crisis that threatens Connecticut’s ability to function properly. The previous re-financing of the state employee pension funds is going to cost billions more over the long term. And we have seen nothing on this proposed deal.’’

“There isn’t any need to rush and do this now,” said Senate Republican Leader Len Fasano of North Haven, who also charged the governor with rushing the state employees’ pension realignment.

Fasano said that deal should have waited until legislators and Malloy reached agreement on how to reduce pension and retirement health care benefits for state workers.

Malloy did strike a concessions deal with unions that the legislature ratified in July. But Fasano and other Republicans offered that benefit reductions in that deal were not sufficient, especially given that it locked Connecticut into providing those benefits through mid-2027.

A handful of House and Senate Democrats also complained privately that the pension restructuring should be discussed publicly during the regular 2018 legislative session, which begins in early February.

Legislators are not the only ones still studying the challenge posed by the teachers’ pension fund.

Nappier said Wednesday that her office began researching options several months ago on how to to retire the pension bonds and to give the state more flexibility to deal with rising pension contributions.

Nappier said that due diligence is not finished and that her office still is awaiting a crucial final report from the state’s actuarial consultants on these issues.

The treasurer, who said late Wednesday she had not reviewed any legislative language the administration may have developed, said she believes the state must find a way to maintain the fiscal discipline standards it accepted when the pension bonds were issued.

“We really need to protect those aspects of the bond covenant … to ensure we are not slowing down or deteriorating our progress,” Nappier said. I am very skeptical about legislating what would be kicking the can down the road without any stop-gap measures.”

Donnelly said the administration shares that concern and would not want to shift pension payments without a plan to keep Connecticut on track to fund its obligations properly in the future.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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