Warning Signs: 2021 Update

EXECUTIVE SUMMARY

by Ken Girardin with analysis by Marc Joffe

Most of Connecticut’s towns and cities face significant unfunded liabilities from pension and retiree healthcare benefits promised to current and former employees. In fact, these liabilities have together grown more than $5 billion in just four years and are likely to climb even higher.

As a group, municipalities owe more money for benefits promised to current and former employees than they do for their own infrastructure. Many of these unfunded liabilities may ultimately prove to be even larger than current estimates as more realistic actuarial assumptions are applied.

The fiscal health of any of the state’s 169 municipalities risks becoming a concern for all residents. This was most recently demonstrated by the state’s 2018 financial rescue of Hartford, which saddled state taxpayers with over a half-billion dollars in payments over 20 years.

To measure the fiscal health of every town and city, Yankee Institute in 2018 worked with municipal finance expert Marc Joffe of the Reason Foundation. Joffe’s updated analysis, using fiscal 2020 data, showed that the town of Stratford, the city of Bridgeport, and town of Hamden are the state’s most fiscally stressed municipalities.

The General Assembly should reduce the uncertainty around unfunded liabilities by requiring municipalities to use actuarial assumptions equal to or more conservative than the state’s main pension fund and to improve public disclosure. Towns and cities, meanwhile, need more flexibility to limit future liabilities by diverting new employees to defined-contribution retirement plans that are popular in the private sector.

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