House Speaker Joe Aresimowicz offered a compromise Wednesday on one of the stickiest points in Gov. Dannel P. Malloy's budget: asking communities to gradually assume a portion of skyrocketing teacher pension costs.
Aresimowicz, D-Berlin, suggested cities and towns assume one-third of these pension costs — or possibly less — but do so in stages over the next five fiscal years.
The speaker offered this alternative during a panel discussion on state finances with House Minority Leader Themis Klarides, R-Derby, and Malloy budget director Ben Barnes. The panel was the opening event at state Treasurer Denise L. Nappier's 2017 Public Finance Outlook Conference at Rentschler Field in East Hartford.
"Doing it all in one fell swoop," Aresimowicz said, referring to Malloy's proposal to bill communities for more than $400 million annually starting next fiscal year, "really would be devastating."
But the speaker said he understands some of the concerns Malloy raised.
Teacher pension costs are projected to surge dramatically over the next 15 years, a problem created largely by more than seven decades of inadequate state contributions.
And Barnes said that the current system "is the most regressive form of municipal aid we provide."
For example, state government will spend $24 million this fiscal year to fund pensions for municipal teachers and retirees in Greenwich – the most affluent municipality in Connecticut. Greenwich has 8,800 public school students.
For New Britain, which enrolls 1,200 more students and is one of the state's poorest districts – the state will spend $17 million this year – 33 percent less than for Greenwich.
By imposing pension bills — proportional to the value of municipal teacher pensions awarded in each community — wealthier towns, where teachers earn higher pay and receive larger pensions, pay more.
But Klarides noted that annual teacher pension costs, which a 2015 study estimated would grow 500 percent over the next decade-and-a-half — from $1 billion to $6 billion — largely are a product of decades' worth of poor decisions by governors and legislatures.
"We have $400M in debt that we can't control and we're going to put it on you guys?" Klarides said to municipal finance officials in the audience. "I don't think that's the way to go. … That is guaranteeing a property tax increase."
Malloy's proposal also comes "at a time when towns and cities are drowning on their own unfunded mandates, that we put on them," the minority leader added.
Klarides and many other Republicans in the House and Senate have pushed in recent years for Connecticut to consider reducing benefits promised to public-sector employees.
Setting two novelty, bean-bag baseballs on the table in front of her, Klarides said, "We need to grow a set of these. We need to make structural changes. … If we don't make these decisions and start getting these fast, things are not going to get any better."
Cities and towns have lobbied heavily against the governor's proposal, saying Connecticut's municipal property tax base already shoulders too many costs, and that placing one-third of skyrocketing pension costs on municipalities would be horrific.
During a March 9 press conference held by municipal leaders at the Legislative Office Building, Coventry Town Manager John Elsesser said his community's proposed share of the teachers' pension bill would consume 11 percent of the town budget by the early 2030s.
But Aresimowicz said he's willing to discuss imposing a smaller share of teacher pension costs on communities than the one-third recommended by Malloy.
The point of … municipalities paying something into it that I think has value is they need to take [pension costs] into consideration when setting the salaries," the speaker said, noting that salaries are a chief factor in determining the value of pensions.
Some would suggest Connecticut could control future teacher pension costs by setting local salaries at the state level.
"I don't think any of the municipalities would like that, but that's the only other way we can control those pension liabilities," Aresimowicz said.
Municipal leaders say the chief reason teacher salaries escalate too much at times is a state-imposed binding arbitration system that favors labor. Reform that system, they say, and future salary levels would be more stable.
Aresimowicz also acknowledged that billing communities for something less than $400 million in annual pension costs would create a hole in the governor's budget.
"If you want to phase it in, fine," he said.. … We would have to balance the budget another way."
Democrats on the Finance, Revenue and Bonding Committee have been exploring a possible increase in the state's 6.35 percent sales tax rate.
Barnes said the administration is willing to discuss alternatives, but that the governor still wants lawmakers to focus chiefly on ideas that reduce spending, and not on those that raise taxes.