Consultant: Connecticut could see up to $900M in savings as retirement ‘tsunami’ approaches

Photo Courtesy of WNPR

State Capitol.

A study of Connecticut’s state government in advance of an expected wave of retirements next year has identified as much as $900 million in potential savings in executive agencies with total budgets of $14 billion, while acknowledging the significant obstacles to making changes in one of the most heavily unionized public-sector workforces in the United States.

The report released Wednesday by the administration of Gov. Ned Lamont says 8,000 of the 30,000 executive-branch employees are eligible to retire by July 1, 2022, when retirement benefits will be reduced under the terms of a 2017 concession deal. A survey found about 70% of the eligible workers were leaning toward retiring.

The highest percentage of expected retirements is among employees responsible for public safety and caring for at-risk children and people with intellectual disabilities and mental illnesses. As such, the exodus poses daunting challenges to maintaining essential services and perhaps offers once-in-a-generation opportunities for fundamental change. 

“Many of these opportunities will be difficult to implement because they require coordination across multiple agencies, legislative change, bargaining with state employees’ labor unions, investment in new technology, and more,” warned the report, completed by the Boston Consulting Group.

The report reinforces the need for changes already underway, especially the Lamont administration’s efforts to shift consumer, client and taxpayer services and interactions online, requiring a shift in culture and the continued development of a common information-technology platform.

“In some cases, the investment in new technology, training, or service development may be significant, but these investments will pay dividends in the long run through improved efficiencies,” the consulting group wrote. “The State can reinvest these savings in efforts to improve equity and services to residents and businesses.” 

Lamont offered no opinion on any particulars in the 127-page document, nor did he comment on the extent to which the report and retirements will necessitate major changes in his administration’s relationship with labor. Instead, he said in a statement, he looked forward to learning how to make government better serve its constituents.

“The world is changing rapidly, and our government needs to move more quickly to transform how we operate to have the greatest positive impact on people’s lives,” Lamont said. “This report will help us do that. I look forward to reviewing these suggestions and considering them as part of our administration’s broad modernization efforts.”

The State Employees Bargaining Agent Coalition, which represents most unionized state employees, had objected to the study and the survey of its members without the participation of union members. On Wednesday, the coalition called it a disappointment.

“At a time when the voices of frontline workers should be elevated and recognized as the assets they are, they were pushed aside and silenced,” the coalition said. “The possible loss of thousands of the state workforce’s most senior and experienced employees is frequently termed ‘an opportunity’ in this report. That opens the door to more austerity and further deep cuts to services, instead of acknowledging the very real challenges facing the state.”

The coalition has questioned whether the pension changes would inspire as many retirements as projected.

Retired state employees now get annual cost-of-living adjustments: a minimum of 2 percent and a maximum of 7 percent, depending on inflation. There will be no guaranteed minimum for those who retire after July 1, 2022, and their first potential COLA would come in 30 months, not 12. Health care also could become more expensive for some retirees.

The study was ordered by the legislature with a mandate that it produce $500 million in savings. It cost $2 million.

The report is at least the 10th study of state government in Connecticut since 1937 and the eighth since 1971, when Gov. Thomas J. Meskill ordered a cost-cutting plan in the face of a fiscal crisis. His successor, Gov. Ella T. Grasso, ordered two more in 1976 and 1977. The last study was in 2010.

Common themes in the studies since 1971 have been the growing burden of an unfunded pension liability, which has led to periodic revisions to the state’s pension benefits and the need to modernize government, particularly its management of information. The current study began in September amid the tumult of the pandemic and a social and racial justice movement.

“Connecticut’s state government, the work environment, technology, and social conditions have changed a great deal in the 10 years that have passed since the last time we conducted a study of this nature, and it was necessary to examine the challenges we face and take steps to improve,” said Melissa McCaw, the secretary of policy and management.

McCaw and Josh Geballe, who is the state’s chief operating officer and its commissioner of administrative services, oversaw the study. The position of chief operating officer, created by Lamont in 2019, was first recommended by a 1991 study led by DeRoy “Pete” Thomas, the chief executive of The Hartford Insurance Group and ITT.

“A lot of the major themes in there are very consistent with things that the governor has been talking about for three years, going back to things he campaigned on —breaking down agency silos, making more strategic and efficient use of the investments that we make in the state, modernizing how we operate, making much more extensive use of technology to improve the services that we provide and to make ourselves more cost-competitive,” Geballe said.

The report examined only the executive branch agencies under the governor’s control. They employ about 30,000. Another 20,000 people are employed elsewhere in state government by the public universities, its hospitals, the courts and the legislature.

Boston Consulting Group

The State Police are part of DESPP, the Department of Emergency Services and Public Protection. DMHAS is the Department of Mental Health and Addiction Services.

The number of employees is down from 59,678 in 2009, due to cost-saving in difficult budget times and the privatization of some group homes for people with intellectual disabilities. The report suggested that greater use of non-profit social service providers could fill the gap opened by retirements, but non-profits have complained about low reimbursement rates.

Connecticut spends about $1.4 billion annually contracting with nonprofits to deliver programs. That sum that hasn’t changed much in two decades. The industry pegs the inflationary loss it’s taking on these payments at $460 million per year.

“Community-based nonprofits can do the job, and we appreciate that that’s been recognized” in the report, said Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance. “But they’ve been underfunded for many years, and in order to do the job, they need to be compensated for the cost of doing the services.”

As was the case with earlier studies of state government, the Boston Consulting report said Connecticut cannot readily make changes due to collective-bargaining agreements, inflexible job classifications and work rules, and a hiring system that can require up to seven or eight months to bring a new employee on board. More than 90% of the workforce is unionized.

“The job classes occupied by state employees are organized in a relatively rigid classification system inherently designed for order and equity rather than flexibility. The sheer volume of job classes and their associated minimum qualifications is another complicating factor,” the report said.

It is difficult to move employees between agencies, even in similar roles. Maintenance workers assigned to one building may be prohibited from working in the building next door.

The biggest potential savings identified by the study was more than $200 million in the Department of Social Services through both short-term and long-term changes to Medicaid.

Targets for savings included reducing the $100 million spent annually on workers’ compensation claims by state employees and $250 million in overtime. 

Most of the overtime is logged at four agencies that operate 24/7. Those are: Corrections; Mental Health and Addiction Services; Developmental Services; and Emergency Services and Public Protection.

“Some 24/7 agencies are staffed by employees on 35-hour work weeks. Given that those employees work 7-hour days, 3 hours of OT or overlapping hours are required every day,” the report said. 

The report recommends hiring more state troopers, calling the department understaffed.

The state’s worker’s compensation benefits are more generous than the neighboring states of Massachusetts and New York.

“One major factor in Connecticut’s costs being higher than peer states is that Connecticut allows workers to receive lifetime benefits for temporary (partial and total) disability,” the report said. “Given the definition of ‘temporary’ disability, the State should match its peers and implement common-sense reform by time-limiting these benefits, which constitute 76% of the total workers’ compensation expenses. Those workers who continue to indicate disability should be examined for eligibility for permanent disability or managed appropriately.”

Staff writer Keith M. Phaneuf contributed to this report.