Despite pension agreement, state still faces “relatively brutal” cost increase
Gov. Dannel Malloy’s budget chief told the appropriations committee Tuesday that, despite a pension agreement between the governor’s office and a group of state employee unions, Connecticut will face “a relatively brutal” increase in pension costs equal to 10 percent of the budget by 2023.
Office of Policy and Management Secretary Benjamin Barnes gave his remarks during a public hearing on the deal with the State Employee Bargaining Agent Coalition or SEBAC.
The pension deal would essentially refinance the existing pension payments by extending them through 2046 to make up for a $16.5 billion funding shortfall. The plan is expected to lock-in state payments into the system at $2.2 billion annually starting in 2023.
Beginning in 2032 the payments would drop to $1.8 billion and then $1.7 billion for the remainder of the plan.
Although not a part of the deal itself, the State Retirement Commission agreed to lower the discount rate from 8 percent to 6.9 percent. Greg Mennis of the Pew Foundation, testified that the discount rate change would bring Connecticut from one of the most “aggressive” states to “one of the lowest rate of returns in the country.”
While generally saying the agreement was a “positive step in the right direction,” Mennis said it was “by no means a complete solution.”
Mennis noted a stark difference between Connecticut’s labor laws and that of 46 other states because there is no state statute that shows how pensions are funded. In Connecticut the pension funding is set in the labor contracts negotiated behind closed doors between the governor and union leadership.
The legislature can vote down agreements made the governor, but they frequently pass up the opportunity because the agreements automatically go into effect if lawmakers don’t vote on them within 30 days.
The closed door meetings were a cause for doubt for Rep. Melissa Ziobron, R- East Haddam, who said she has “no faith” in the solutions presented because of the secretive nature of the negotiations. “I don’t know what is in store for the taxpayers,” Ziobron said.
Several union representatives testified in support of the bill. Sal Luciano of the American Federation of State, County and Municipal Employees said that under the current repayment plan the growing payments would crowd out funds for state employees and services. Pension payments are part of the state’s “fixed costs” so dramatic increases can lead to employee layoffs and budget cuts.
Attorney Dan Livingston, chief negotiator for SEBAC, lauded defined benefit plans as “good for the economy” and said the pension fund was “a great asset to the state.”
Suzanne Bates, policy director for the Yankee Institute, testified that although there were some positive things about the deal, such as lowering the discount rate and moving to a level-dollar payment, it did not constitute pension reform.
“We believe that our pension benefits are too expensive at this point,” Bates said.
Bates’ testimony drew a “visceral” response from Sen. Cathy Osten, D-Colombia, who repeatedly cut off Bates from responding and then walked out of the meeting. Committee chair-woman, Toni Walker, D-New Haven, remarked about Osten’s questioning that “none of us have the right to be that aggressive.”
Discussion on the pension funding agreement often lapsed into discussion about issues outside the agreement and Walker repeatedly reminded both speakers and committee members to stick to the issue at hand.
The agreement between the governor’s office and SEBAC must be voted on within 30 days of the opening of the legislative session otherwise it will go into effect automatically. A vote is scheduled for Jan. 31.