February 19, 2019

Lamont seeks major giveback from retired state workers

HBJ File Photo
HBJ File Photo
Connecticut state Capitol in Hartford.

Gov. Ned Lamont will seek concessions that could reduce pension benefits to retired state employees by more than $300 million per year — an unprecedented move that was immediately met with resistance Tuesday from union officials.

Faced with skyrocketing teacher pension costs, Lamont also will revive a controversial proposal to share a portion of those costs with cities and towns — albeit a smaller share than his predecessor, Gov. Dannel P. Malloy, sought when he first proposed cost-sharing in 2017.

"While I love history and tradition, there is no reason to continue with bad or outdated policies that are no longer working for the people of this state," Lamont said Tuesday. "Taxpayers are tired of hearing this year after year, and rightfully so. This is the 'Land of Steady Habits,' but we can't continue along the same path and expect that things will fix themselves. Our state needs to make real, substantive structural changes to facilitate a sustainable financial future. As the economy and peoples' habits change, we need to demonstrate that Connecticut's state government can keep pace."

Lamont's first budget, which he will propose to legislators Wednesday, would reduce the cost-of-living increases awarded to retired state employees, but only if returns on pension investments under-perform. The state assumes an average return on pension investments of 6.9 percent and COLA adjustments would be capped at 1 percent if returns fall short of expectations.

Sources familiar with the governor's budget proposal said this could save as much as $315 million next fiscal year and $331 million in 2020-21.

But Lamont could not impose these changes without the agreement of state employee unions. And Lamont reassured those unions repeatedly on the campaign trail last fall that he would seek "win-win" scenarios and "reforms" that reduced costs while benefitting both labor and state government.

For example, Lamont often suggested he would explore changes to how the state purchased medications to see if costs could be reduced without reducing the quality of employee health plans.

The State Employees Bargaining Agent Coalition's response Tuesday was swift and clear.

"To be clear: we will not be part of asking for still more sacrifices from state employees, who have already given so much for the people they serve," the coalition wrote. "We will, however, continue working with the Lamont Administration and the General Assembly on "win-win" solutions for achieving efficiency and that will benefit everyone. Additionally, we will continue fighting for a fair budget that empowers all to thrive together here in Connecticut."

Lamont's proposal would mark the fourth time in the past decade that state employee unions have been asked to provide wage or benefit givebacks to help avert deficits.

Unions granted a wage freeze and health and pension concessions in 2009 to Gov. M. Jodi Rell and in 2011 and 2017 to Malloy.

Lamont also is trying to avert significant potential deficits. Based on projections from nonpartisan analysts, and a revised revenue forecast issued Jan. 15, state finances — unless adjusted — are on pace to run $1.5 billion in deficit in the 2019-20 fiscal year. The potential gap grows to $2 billion in 2020-21.

But Lamont doesn't have the same leverage that Rell and Malloy had to induce worker givebacks.

The 2017 concessions deal exempted many unionized workers from layoffs for four fiscal years, running through June 30, 2021.

The only exceptions are state police troopers — who declined to accept a wage freeze as part of the 2017 deal — and workers hired after July 1, 2017, when the concessions agreement took effect.

Full details of the governor's plan to share teacher pension costs — including when the cost-sharing begins and how it will be phased in — weren't released Tuesday.

But Lamont's plan is based on a sliding scale that asks Connecticut's poorest communities to pay the least and its wealthiest ones to pay the most.

When it comes to the state's required annual contribution to the teachers' pension fund, Lamont will ask municipalities to pay the "normal cost." This is an actuarial term referring to the full amount that must be set aside annually to cover the future pensions of present-day teachers.

According to Comptroller Kevin P. Lembo's office, this represents just 15 percent of the annual payment.

The remaining 85 of the annual contribution — and the part that's projected to skyrocket over the next decade-and-a-half — involves covering Connecticut's past fiscal sins. This would remain the state's responsibility.

Between 1939 and 2008, legislatures and governors routinely shortchanged the pension fund, contributing billions of dollars less than recommended — and forfeiting billions more in potential investment earnings in the process.

As Connecticut tries to reverse decades of fiscal irresponsibility, the annual payment — $1.3 billion this fiscal year — is projected to spike between now and the early 2030s, peaking anywhere between $3 billion and $6.2 billion.

The projection for next fiscal year's contribution is $1.39 billion and 15 percent of that payment is $209 million.

But Lamont also hopes to shrink the bill both for the state and for municipalities.

The governor is working with state Treasurer Shawn Wooden to restructure annual contributions into the fund in the coming decades. In other words, the contribution still would rise into the early 2030s, but not as sharply. And after that and through 2046, the contribution would drop, but also not as rapidly as currently projected.

Full details of that plan weren't available Tuesday, but if Lamont lowers next year's contribution below $1.39 billion, the municipalities' collective share of about $209 million would drop as well.

Malloy originally proposed in February 2017 that municipalities cover one-third of all teacher pension costs, recommending an initial collective bill of $400 million.

More importantly, that bill might have risen dramatically over the next 10-to-15 years as the pension contribution potentially spikes. The "normal cost," which Lamont's plan relies upon, is projected to remain relatively stable going forward.

Not surprisingly, Malloy's 2017 proposal met with fierce opposition from the Connecticut Conference of Municipalities and from the Connecticut Council of Small Towns, who argued covering a share of the fastest-growing line item in the state budget would devastate local spending plans.

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