Time to confront Connecticut’s looming financial crisis
Here we go again. Less than a year after a record 123 days without a budget, the legislature careens towards yet another budget crisis with 11th-hour negotiations and no clear path forward for addressing Connecticut’s looming financial crisis.
Regardless of this year’s “fix,” the next governor and legislature will face a gaping $5 billion hole for the next two years that threatens our families, our jobs, and our employers. Last year’s crisis gave us a preview of what is in store if we stay on the current path: cuts to towns for police; cuts to education for our children; and cuts to programs that support the most vulnerable in our state.
No career politician or labor leader has been willing to talk honestly about the core of Connecticut’s fiscal challenges — our state employee labor agreements and unfunded retirement plans. Our unsustainable pension system has caused our budget to be in chronic deficit and our debt and retirement obligations to balloon to levels that we will never be able to pay.
The magnitude of the problem is so large that it is hard to comprehend. In the business world, a retirement plan that is funded under 80 percent is generally viewed to be insolvent. Our state employee pensions are funded at only 29 percent, teacher’s pensions funded at only 52 percent, and health care benefits funded at an appalling 1-2 percent.
I discussed this crisis at Tracey Elementary School in Norwalk. The Connecticut Legislature passed the Education Cost Sharing formula to provide funds to districts educating our most vulnerable, including the children at Tracey. Since its passage, the state has never complied with its own law because of chronic budget deficits. Hartford insiders have failed us.
The first step to solving this problem is recognizing that our retirement plans are beyond simple reforms. They cannot be reformed. They must be restructured. Any candidate for governor or union leader who tells you otherwise is either lying to you or is too uninformed to hold the office.
My perspective as a political outsider and a businessman is to confront these problems head-on and solve them with thinking that is outside the box. We will make difficult decisions, take bold actions patterned on success in the private sector, and come together to reach a settlement that is fair to everyone – our state employees and retirees, our taxpayers, and our children.
I have proposed a detailed, 10-page plan to save state employee benefits from insolvency and build a foundation for fiscal stability. It’s based on three key principles: First, retirees will know that they will be paid what they are promised going forward. Second, taxpayers will not pay for retirement benefits greater than what they can earn themselves, and they will no longer bear the risk of guaranteeing defined benefits. Third, we will retain as a state the resources we need to meet our responsibilities for our children and the generations that follow.
To fund and settle claims for past earned benefits, the state will contribute additional assets into a newly created locked and independently managed trust in exchange for employees and retirees accepting changes to their retirement plans. Future benefits will be fully funded as earned in a new plan with employee choice.
Assets to support the benefits earned by retirees and employees will come from the accumulated assets of the retirement plans plus three additional new contributions from the state – a lump sum payment, underutilized state-owned assets, and a financial incentive tied to the future economic performance of the State of Connecticut that will align the interests of state employees and retirees with taxpayers and employers.
The total amount of assets and payments contributed to the plans will be capped by the state’s need to have a sustainably balanced budget and meet its obligations to future generations.
I also propose making good government reforms to our ethics and conflict-of-interest laws to prevent this from happening again. The full plan is available on our website.
Our state faces grave threats, but also has tremendous potential. In the weeks to come, we will make bold proposals to rebuild Connecticut’s former strengths in taxes, transportation, and education, to create a future where Connecticut is once again the best place in the country to live, work and raise a family, and where our only limit is our own imagination.
David Stemerman of Stamford is a Republican candidate for governor. He started his own business, Conatus Capital, from a single desk and grew it into a multi-billion-dollar global business.
