Gov. Ned Lamont is hoping a friendly approach will entice state employees to forego nearly $200 million in raises and additional salary costs the state faces this summer.
But workers, many on the pandemic frontlines in state facilities, aren’t amenable to the idea of forfeiting their raises, which they did five times in the last 11 years.
And unfortunately for Lamont, decades of questionable fiscal practices by his predecessors leave him little leverage other than to ask nicely.
“We’re going to have to streamline things, make some cuts [and] work in collaboration with our friends in labor,” Lamont said during a May 1 televised briefing on the pandemic-induced budget chaos. “I’m sorry to ask everybody, but we’re going to have to do a little more on this fiscal front.”
Eroding income and sales tax receipts and surging medical costs should consume Connecticut’s record-setting, $2.5 billion rainy day fund before the next fiscal year ends 13 months from now. And it also will take about $500 million in spending cuts and revenue increases to balance those books, Lamont said.
After that Connecticut still faces likely revenue shortfalls topping $2 billion per year in the next biennial budget. That’s an annual gap of about 10% of the General Fund. Even with another massive round of federal aid, the numbers just don’t add up.
Not surprisingly, Lamont wants to avoid raising taxes.
State officials hiked income tax rates three times between 2009 and 2015 as seven decades of amassed pension debt caught up to Connecticut in a big way after the last recession.
Connecticut has received more than 518,000 applications for unemployment benefits since mid-March. That’s three normal years’ worth of requests filed in two months.
“The goal is obviously not to do damage to our tax constituents at a time they’re trying to recover,” Melissa McCaw, Lamont’s budget director, said during the May 1 briefing.
“We’re not in Kansas anymore, said Senate Minority Leader Len Fasano, R-North Branford, who said giving state employees a 3.5% base hike and a step increase amidst this economic pain would be beyond insensitive. “We’re in a different world.”
Normally, the stick that governors brandish at unions to secure givebacks is layoffs.
Lamont not only has never breathed the L-word, he avoids terms and phrases like “concessions” or “reopen contracts.”
“Governor Lamont wants to get at the table and just have conversations,” said Paul Mounds Jr., Lamont’s chief of staff, who added there is no presupposition for how savings might be achieved. “He likes working collaboratively. It can have its pros and cons, but — overall — his comfort level is just to pick up the phone and have a conversation.”
Does that mean “concessions” never would be discussed?
“At some point it could be part of the conversation,” Mounds said.
Administration officials met with union leaders on May 5, but made no proposals. with no proposals swapped or deals reached.
Labor leaders attended “solely to listen to the administration,” the State Employees Bargaining Agent Coalition posted on its website that same week. “No further meetings with the administration are scheduled.”
But Mounds said talks are expected to continue.
Layoffs are not a big cost-saver
While the chief of staff also never hinted at layoffs, administration officials have acknowledged laying off state workers is easier said than done. Finding savings through layoffs is even harder.
Just ask former Gov. Dannel P. Malloy, who twice struck concessions deals with unions.
Trying to coax givebacks in early 2017, Malloy repeatedly threatened to lay off 2,000 workers — a relatively modest number that represented less than 5% of the workforce.
When Malloy pulled the trigger that June, he managed less than half of the promised pink slips, and later that summer he and the unions struck a deal that averted job losses.
Six years of hiring freezes to balance budgets had left the Executive Branch struggling with staffing shortages and surging overtime costs.
When Lamont took office in 2019, he inherited a workforce that was more than 9% smaller than when Malloy began in 2011.
Layoffs simply aren’t a major cost-saver in state government here. According to the nonpartisan Office of Legislative Research, several contractual obligations typically cut the savings from layoffs in half during the first year:
- Unionized workers must give several weeks or even months notice before leaving the job.
- Because the first two weeks of all state workers’ salary is withheld and not paid until they end employment, that expense also must be met.
- Accrued vacation and compensatory time must be paid.
- Payments to the Unemployment Compensation fund increase.
- Pension fund contributions still must be made.
- When Malloy was issuing pink slips three years ago, the nonpartisan Office of Fiscal Analysis estimated just under 2,000 layoffs would save about $133 million.
If Lamont ordered layoffs, he still would be on the hook for nearly $200 million next fiscal year. That includes about $35 million for raises that kicked in last January, which now must be paid for over the course of a full fiscal year, as well as $160 million in new increases owed in 2020-21.
Ending pensions for non-vested workers after 2027?
Fasano and other Republicans say layoffs are not the only option.
During a marathon 9-month budget debate in 2017, Senate Republicans proposed new restrictions on state pension benefits — effective on July 1, 2027. That’s because Connecticut is obligated to offer employee pensions and retirement health care benefits, by contract, until that date. But Fasano also said the state could begin taking some of the savings right away.
The plan never made it to Malloy’s desk. The Democratic governor vowed to veto it if it did, calling it fiscally irresponsible. Unions vowed to sue, calling it illegal to cancel benefits while the contract was still valid.
Fasano, who is retiring in January, said Lamont and legislators should revisit the concept in 2021.
“When Connecticut was robust and doing well, the unions benefited from being a part of all this,” he said. “Well, Connecticut is not doing well.”
In recent elections, Republican candidates for governor and the legislature routinely call for an end to pensions and retirement health care for non-vested employees after 2027.
Deputy House Minority Leader Vincent J. Candelora, R-North Branford, also says Connecticut must revisit a wage and benefit system it cannot afford.
“I believe the state would have the ability to do that,” he said, referring to the 2027 proposal. “We’re in the midst of a pandemic and everything is supposed to be on the table. We’re closing businesses and churches, and for some reason this is government’s sacred cow?”
Unions: Officials have forgotten workers’ past sacrifices
Union leaders say Fasano and other critics of the raises and benefits have short memories.
Workers are owed an increase next fiscal year specifically because they waived across-the-board hikes in 2018 and 2019 as part of the concessions deal from three years ago. Workers did receive one-time bonuses of $1,000 to $2,000 in lieu of raises in 2019.
There were two more wage freezes in a 2011 giveback package, and a one-year freeze in 2009.
“Take away those three concessions packages and Connecticut doesn’t have a rainy day fund,” said Connecticut AFL-CIO President Sal Luciano, who said five years of hard wage freezes in a decade has taken a toll.
Luciano, who spent two decades leading the largest state employees union — AFSCME Council 4 — before taking the helm at the AFL-CIO, is intimately familiar with those givebacks, which also increased worker health care costs and tightened pension benefits.
While retirees who served Connecticut in the 1980s and 1990s enjoy lucrative pensions, concession after concession has changed the game for newer employees.
Those hired at present qualify for far less than the $38,284 per year average.
According to Council 4, a non-hazardous worker earning $51,500 annually would qualify, after 20 years of service, for a $17,500 pension. The average pension for a new hire in a non-hazardous post is $18,600.
Behind numbers, Luciano said, are prison guards, nursing home inspectors, social workers and psychiatric hospital staff risking COVID-19 infection daily.
“One of our co-workers volunteered to work on the COVID-19 unit and ended up losing his life,” said Lenese Robinson, a developmental services worker at Southbury Training School and one of several members of SEIU Healthcare 1199NE who shared their coronavirus stories this month. “That is the ultimate sacrifice. He was a healthy guy. … Even with this knowledge, we are still coming to work every day.”
Connecticut must reckon with wealth inequality
Luciano and other labor leaders say Lamont’s only solution is to go down a path he greatly fears — raising taxes on Connecticut’s richest households.
“Wealth inequality is a huge problem and probably nowhere else in the world is it greater than in Connecticut,” Luciano said.
The U.S. emerged from the last recession with income and wealth disparities at their most severe since the stock market crash of 1929.
The top 1% of all households nationally earned 25 times what the bottom 99% averaged. In Connecticut, the ratio was 43-to-1. In Fairfield County it was 74-to-1.
Lamont, who fought hard in his first year to kill a proposed income tax surcharge on the capital gains’ earnings of wealthy households, insists this type of tax policy will prompt the rich to flee Connecticut.
“We try to have an overall tax system that is competitive with our regional partners,” Mounds said.
Others argue that Connecticut’s state and local tax system, with its heavy reliance on regressive measures like property and sales taxes, is crushing the poor and middle class and — ultimately — destroying the economy. A 2014 analysis by the state Department of Revenue Services found Connecticut’s state-and-local tax system does just that.
The poorest — about 725,000 filers earning up to $48,000 per year — effectively spent 23.6% of their pay on state and local taxes in 2011.The middle-class paid about 13%, while the top 1% paid about 7.5%.
“I think all of the constituencies in Connecticut have a role to play” to solve the budget crisis. Mounds said. “And I think the governor is going to approach it as he always does, with honest and meaningful conversations.”