Report by Paula Antolini
December 17, 2016 5:26PM EDT
Governor Malloy’s Holiday Pension Announcement No Gift to Connecticut
Written by Sen. Toni Boucher
Instead of giving state residents the desperately needed present of pension reform, the changes announced by Governor Dannel P. Malloy last week are more like a gag gift. This plan shifts billions in costs into the future to mitigate payments in the short term. It will cost at least an additional $17 billion without enacting any true pension reform by modifying benefits.
Connecticut taxpayers are tired of the unsustainable budget gimmicks and kick-the-can approach that burdens future generation with irresponsible budgeting decisions. It is time for the unions and state government to act like the adults we are supposed to be and make hard decisions.
At meeting after meeting, legislators are told that the main problem with Connecticut’s budget is “fixed costs.” The hundreds of millions of dollars in debt service payments, pension payments, and healthcare costs make up more than 50% of the total state budget and are treated like something we can’t do anything about. But we can. As Chris Powell at the Manchester Journal Inquirer recently said, if the problem with the state budget is fixed costs, then it is time for us to un-fix them.
One of the easiest ways to do this is by taking control of debt service. We have to stop treating the State Bond Commission like Santa’s bottomless gift bag. While every item on the agenda represents an important project to someone somewhere in our state, we just can’t afford them all.
Since 2011, Connecticut’s bonded debt has increased by $4 billion and represents far more than the recommended 10 percent of our budget. Capping the amount of bonds issued by the State Treasurer, as well as those awarded through the bond commission, will slow down an expense that threatens to swallow all of our resources. This credit card is maxed out.
State employee pensions are the other fixed cost we need to address. The current proposal by the Governor to lower the expected return on investment does nothing to improve the solvency of the fund or the undue burden placed on taxpayers. Like switching from a 15-year mortgage to a 30-year mortgage, you still owe the same base amount and you end up paying more in interest. The only thing you have done is bought yourself more time.
But in reality, we are out of time. The unfunded pension liability and our refusal to seriously address the issue has created an unstable economic climate and resulted in a lowering of our bond rating. The U.S. Congress’ Joint Economic Committee recently noted that in addition to having one of the nation’s largest unfunded pension liabilities, Connecticut ranks in WalletHub’s top ten states for tax burdens. This makes fewer and fewer businesses willing to bet on our state, and has residents with the ability to move calling their realtors. Responding to the pension shortfall by raising taxes will accelerate the business and residential exodus and result in fewer taxpayers to shoulder the burden of higher taxes.
It is in everyone’s best interest, including state employees, to start talking about changes we can make to the way the pensions are funded and how payments are calculated. Like employees in the private sector, state employees need to contribute more to their retirement. A majority of employees pay only 2 percent of their income toward their pension, while 25 percent of state employees pay nothing at all. Continuing this level of employee contribution is unrealistic considering that other states have employees making 6-7 percent contributions. Also unrealistic is permitting some of the mechanisms now being used to boost individual pensions. Allowing massive overtime payments to be included in the pension calculation, some that more than double an employee’s annual salary, has got to stop.
I don’t expect these suggestions to make everybody happy, but the path we are on is unsustainable and the time to act is now. If we don’t, the only thing Connecticut may get in its Christmas stocking next year and for years to come is a lump of coal.