Borrowing from our children
How much money do you think is okay to borrow from your children to pay for your retirement? Gov. Ned Lamont and the Democratically controlled Connecticut state legislature have decided $27 billion is an acceptable bill to hand to our children – that is billion with a “B.”
The linchpin supporting the recently adopted budget was their decision to postpone $9 billion in payments for teachers’ pensions due in the next few years. Delaying the payments ultimately increases their cost to $27 billion. So much for Lamont’s self-proclaimed “debt diet” for Connecticut.
Numbers this large are hard to comprehend, so let’s take it to a human scale. Several UConn current and former employees are eligible to collect a pension well into the six-figures. With less than one-third of the cost for government employee pensions put aside, at least $100,000 will be needed every year to pay for one pension. In other words, 30 students’ entire $16,000 annual tuition for four years will be spent on just one pension over 20 years – instead of invested in engineering, computer science and other areas that would strengthen our state’s educational system and provide students with a job after graduation.
In the private sector, employers and employees are required by law to put aside enough money each year to pay for benefits. In government, politicians and union leaders hold themselves to a far different standard. For years, they permitted themselves to promise state employees and teachers benefits much richer than private sector benefits without requiring workers or the state to put aside enough money to pay for them.
Massive increases in pension costs have led to lower quality of life, a less competitive workforce and higher taxes. Our roads that once speedily connected our cities and towns are clogged with traffic and our trains to New York City are slower than they were in 1970. Our once superior workforce increasingly fails to offer employers sufficient workers with high demand skills. Tax increase after tax increase has raised the burden of state and local taxes from one of the lowest in the region to the second highest in the entire country.
Residents and businesses are voting with their feet. From 1990 to 2015, Connecticut lost nearly $13 billion in net adjusted gross income from residents leaving to other states. In the single year of 2016, Connecticut lost $2.6 billion. At that rate, Connecticut would lose 30 percent of its income in a mere 20 years.
Losses are poised to accelerate. The cap on federal tax deductibility for state and local taxes has deepened the bite of Connecticut’s high income and property taxes. Recent steep declines in Connecticut home values portend faster losses.
Famed investor Warren Buffet advises companies to avoid states with big unfunded liabilities, warning that they are likely to raise taxes repeatedly. Buffet cautioned against investment in Connecticut and Illinois. Rising taxes, a shortage of skilled workers and enormous unfunded pensions pushed GE out of Connecticut. The same toxic combination likely played a role in driving out United Technologies, despite their public statements.
We find ourselves here as the consequence of corruption at the heart of our political system. Government employee unions are the only groups in Connecticut that automatically deduct dues from worker paychecks and deposit them directly into their own bank accounts. Government unions use these dues to support candidates that will take care of them when elected.
Government employee unions’ power has become so pervasive that the Speaker of the House is a full-time employee of a government employee union. Unions have used their power to make Connecticut one of only four states in the country that grant unions the power to collectively bargain for state employee benefits. Government unions negotiate their benefits with a governor they helped elect and have them approved by a legislature led by their own member.
Teachers’ pensions are negotiated in cities and towns, but their cost is borne by the state. This unusual arrangement was designed by Connecticut politicians to allow their allies in major cities to promise benefits to their teacher union supporters far in excess of what those cities could afford. Hartford would have gone bankrupt from excessive municipal employee pensions but for a state bailout.
Neighboring Rhode Island provides a cautionary tale about the value of IOU’s for government benefits. One Rhode Island city filed for bankruptcy collapsing under the weight of pension obligations. The court imposed major reductions in pensions. Another Rhode Island town reduced benefits to avoid bankruptcy. The courts affirmed those reductions despite finding the U.S. Constitution protects those benefits.
This is the season of graduations, including for my oldest daughter from high school. Let’s come together and agree to a settlement for our unfunded pensions that provides retirement security for our government employees and teachers, fairness for our taxpayers and opportunity for our children to realize their dreams and our families to stay together in Connecticut.
David Stemerman is a businessman and former Republican candidate for governor.
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