Sovereign immunity and Connecticut’s pension obligations
For those who have been following its economic and tax fortunes, Connecticut has been lagging behind other states and has a millstone of unfunded pension liabilities around its neck. Depending on whom you ask, the unfunded pension liabilities for the State Employee Retirement System and the Teacher’s Retirement Fund are $39 billion, if government standards are applied, they are in excess of $100 billion if private sector accounting standards are applied. While Connecticut has contributed more to these pensions in the last few years, Connecticut at the same time has been losing population; seen more capital and high earners leave the state than enter the state; and the budget shortfalls continue unabated.
To the layman, when you have an annual state budget of about $22 billion dollars, which is chronically short of funds, and you have unfunded pension obligations of over $100 billion, a reckoning has arrived.
This is what $100 billion looks like: $100,000,000,000.00. We have seen what two rounds of tax increases under Gov. Dannel Malloy have achieved: people and businesses have left and continue to leave. Our state is now at a point of zero tolerance for tax increases of any kind. With more taxes, people that earn and have money leave. And so the downward spiral will continue if we choose the tax, fee and “revenue” path to salvation. Tolls and gas taxes are a fool’s errand.
What do we do? We have an obligation to the kind and well-meaning pensioners of the state as well as existing employees of the state to whom we promised pension benefits. On the other side, we have the need to make the state a place where businesses want to stay; where people want to open new businesses; and, where our residents want to retire and enjoy their golden years.
And then there are the core functions of our state: to educate our young people; to have quality roads, bridges, buses and railroads; to have a social safety net for those of our citizens who need help from time to time; to reinvigorate our cities as places of leadership and jobs; to support our health care system; to have decent recreational and tourist facilities; and, to provide the myriad other services to its citizens commonly expected of a state government.
Lest we forget the words of James Madison in Federalist Paper 62:
So the obligation of the State of Connecticut is first to the survival of the state for its general citizenry. This comes before any particular class of citizen.
Pensions that have vested to a pensioner or an existing state employee are viewed as property in Connecticut. Pineman v. Oechslin, 488 A.2d 803, (Conn. Supreme Ct. 1985), and Poole v. City of Waterbury, 831 A.2nd 211, (Conn. Supreme Ct. 2003).
So with unfunded pension obligations of $100,000,000,000, some ask whether Connecticut can use bankruptcy. Bankruptcy was recently used in Detroit to get their city on a better fiscal path. Some suggested it be used for the City of Hartford to deal with its fiscal woes. But bankruptcy is not available to a state. So what are the options for the State of Connecticut?
Is it just endless litigation? But wait. Due to increases in taxes, fees and “revenues,” we are losing people and tax revenue year on year. We don’t have the money to salvage the existing $100 billion in unfunded pension obligations to the State Employees’ Retirement System and Teacher’s Retirement System. And the imbalance increases every year. Clearly the stakeholders of pensioners, existing state employees, the legislature and the governor will have to meet and discuss the best resolution for all involved in light of the untenable situation that we are now in.
As a practical matter, what can suing do? Not much. Our sovereign immunity deprives the pensions of any remedy. You may recall that sometimes when you come to road construction, there will be a sign that says the liability of the state is limited in the construction zone. The only reason a person can sue the state is because the state voluntarily waived its sovereign immunity.
Every contract entered into in the State of Connecticut carries the law of the state with it even though it is not printed in the contract. For example, let’s say that a contract between two parties called for the discrimination against customers based on religion. That is against the law in Connecticut, so that cannot be enforced. So you must consider that the Connecticut Constitution is attached to every contract executed under Connecticut law. This is particularly true for contracts entered by the state.
Our Constitution is a limited charter. The government has no more authority than that granted by the people to the state as all political power rests with the people. Article 1, section 2, of our Constitution sets forth: “All political power is inherent in the people, and all free governments are founded on their authority, and instituted for their benefit: and they have at all times an undeniable and indefeasible right to alter their form of government in such manner as they may think expedient.”
Our Constitution is not a suicide pact amongst citizens. It was not drafted and adopted to assure the extinction of our state! As we have seen with two rounds of tax increases over the past years ushered in by Gov. Malloy, people with jobs and money have left the state to be replaced by people who have less jobs and money. So then we can’t pay our bills the next year, so we raise more taxes and force more citizens to leave the state. The recent suggestion of Gov. Malloy to impose highway tolls and gas taxes on our citizens is like asking the citizen to hold two more bricks in their hand while they try to keep their head above water.
The bias of the administrative state to raise taxes, fees and “revenues” again will repeat the cycle until no one is left in the state to pay taxes. Our ultimate goal has to be to grow the economy and to lessen the tax, fee and “revenue” burden on the citizenry. In the short term this means no new taxes. If we can get the economy going, then we can lower taxes to keep the economy going and for the benefit of the citizen.
Let’s examine where we are at present. Two expressions come to mind: “reductio ad absurdum” and “slippery slope.” Under reductio ad absurdum you take a proposition out to its logical conclusion and end up with an absurd result. Any measure of increased taxes, fees or “revenues” will make more people who earn and have money to leave the state, causing the budget shortfalls to continue and the same cycle until no one is left to pay taxes in the state.
Our Constitution and our sovereign immunity never contemplated the extinction of our state. When we look at a slippery slope we have already lost traction. If you think you can sneak in another tax, fee or “revenue” boost, and Connecticut won’t lose more people, you are delusional. And as a quick aside, these tolls and taxes make it even harder for poor people to earn their living, as yet more money is taken away from them by the state.
No judge can have a state senator or house member arrested for voting to give money to schools or funding our cities. No judge can have a governor or treasurer arrested for writing checks from general funds for education, housing, health care, roads, bridges, buses, employee wages, social, safety net expenditures, and other functions of state government versus underfunded pensions. No judge can seize property of the state for favoring one form of spending over another in an annual budget vote.
In the end, our Connecticut Constitution gives the authority to decide how we will tax and spend to the legislators and governor and to no one else. No judge can determine how our general fund monies are raised or spent. Every two years, the citizens vote for state representatives. It is the will of the people that is exercised by the legislative and executive branches. Our Constitution is not a suicide pact, it is founded on the authority of the people and instituted for the benefit of the people and not any specific class of citizens. The people have an unfettered right to alter the form of our government in such manner as the people think expedient.
Without businesses and a favorable tax climate, people will not have jobs and they will not stay in the state. And if you don’t have businesses or people, you don’t collect taxes. In the end, sovereign immunity supersedes any lawsuit against the state to compel payments. Existing pension funds can continue to pay out of what they have until they are insolvent, a very bad result for those who depend on it.
We are left with the unpleasant sharing the pain between the citizenry and the kind and well-meaning retirees of the state. We should also not forget the younger state employees who do not have vested retirement benefits yet, but who are presently paying into insolvent pension funds — pension funds that will be gone before they retire. This is not a happy situation for any of the parties involved.
The burden of the administrative state of taxes, fees, “revenues,” rules, regulations, mandates and the millstone of unfunded pension obligations must be reformed to save Connecticut.
Respectfully submitted for consideration by my fellow citizens.
Peter Thalheim, Maj, JAG Corps, USAR, ret., is a candidate for governor.
