This week Gov. Dannel Malloy announced that he will invite Democratic and Republican legislative leadership to bipartisan budget talks, to try to come up with ways to cut government spending. This is a positive step, and hopefully the talks will bear some fruit.
In that spirit, we have an idea they can all use: Reform government employee pay and benefits.
Government employees in Connecticut earn an average of 25 to 46 percent more than people with similar education and experience in the private sector, according to research conducted for the Yankee Institute by Andrew Biggs, an American Enterprise Institute scholar and national expert on compensation and retirement issues.
Earlier this month we released a study, Unequal Pay: Public Vs. Private Sector Compensation in Connecticut, that examined the extent of the problem. This week, Biggs visited Connecticut to explain the gap in further detail to audiences in Stamford and Hartford.
Biggs explained that while salaries are very similar between public and private workers, there is a large difference in benefits.
Government workers receive pensions and healthcare benefits that are significantly more expensive than those received by employees at private companies.
Biggs also put the problem in context – Connecticut, by far, pays more in total compensation to government workers than any other state. For example, Connecticut retiree healthcare benefits are twice as generous as the average retiree healthcare benefit for a state worker.
This is costing the state billions – in the study, Biggs estimates that if Connecticut compensated public employees like the private sector, it could save between $1.4 and $2.5 billion.
There were some changes to state employee pensions in 2011, but they didn’t go far enough. They left all of the risk for guaranteed pension payments on the taxpayer. And courts have said there’s no way out – once those benefits are promised, they can’t be altered or withdrawn, even if the state is facing a fiscal crisis.
Given this, legislative leadership from both parties should seize this opportunity to call for real and lasting reforms to state spending, and they should start with reforming government employee pay and benefits.
All state employees could be moved onto the Access Health CT insurance exchange, or they could be offered health plans with high deductibles and health savings accounts.
It is also imperative to reform retiree healthcare. The state cannot afford to continue to offer full health benefits to employees who retire before the age of 65. If a worker wants to retire at age 55 with a full pension, they could be offered a stipend instead, and offered an opportunity to buy health care on the state’s exchange.
In his presentations, Biggs spoke about the risks to states if they do not make lasting, substantive reforms.
Illinois is an example of a state that can no longer afford to pay its bills for state retirees, and could potentially seek federal bail-out money to stay afloat. Unlike municipalities like Detroit, states have no recourse for declaring bankruptcy. So states like Illinois must now examine what their options are to get back on track.
This is a cautionary tale for Connecticut. Sadly, we are not all that far behind Illinois. It is time to make structural reforms – reduce spending on state employee health care, and offer all new hires 401(k)-style retirement savings accounts instead of guaranteed pensions.
This is the way to achieve fiscal sustainability moving forward.
