“New Jersey and Connecticut are, in effect, devoting billions in tax revenues to expenditures from which taxpayers will gain no benefit whatsoever,” Eide writes.
Connecticut’s government unions have rejected calls for making reforms to the state’s retirement benefits and this year secured those benefits until 2027 with a concession deal negotiated between union leaders and the governor.
A Republican-backed attempt to make reforms after 2027 as part of the budget were met with a lawsuit threat by the unions and eventually dropped from budget negotiations.
But the pension problem promises to grow worse over time. This year, Gov. Dannel Malloy refinanced the state employee pension debt, stretching the payments out until 2047, “but at the expense of transferring $14–$21 billion in additional costs onto taxpayers between 2033 and 2047,” the study says.
The state employee pension costs will grow to $2.2 billion per year by 2027, and Connecticut will need to find some way to pay for it.
Teachers’ pension costs threaten to grow to $6 billion by 2032, according to a study by the Center for Retirement Studies at Boston College.
Malloy attempted to refinance those pension liabilities during the 2017 budget negotiations, but, thus far, the proposal has been rejected. He is also pushing for municipalities to cover part of the cost of teacher pensions, an idea which would likely increase property taxes on homeowners and has proven highly unpopular.
Unlike the state employee benefits, teacher pensions and benefits are set in statute and can be changed through a legislative vote.
The effect of the unfunded liabilities is growing and has hindered budget negotiations throughout 2017. The unfunded liability costs have increased more than the tax revenue gained by the 2011 and 2015 tax increases combined, according to Office of Policy and Management Secretary Benjamin Barnes.
These added costs threaten to “crowd-out” other state services as Connecticut continues to see flat or declining tax revenue.
The past three tax increases in Connecticut have been met with continued budget deficits and, according to a study by Pew Trusts, Connecticut has spent more money than it has taken in for 10 out of the past 14 years.
Connecticut’s government union leaders have called on lawmakers to raise taxes on the state’s highest earners again. New Jersey is facing similar pressures but, as Eide notes, the state would not raise enough revenue by taxing the wealthy to cover the multi-billion dollar cost increases. Eventually, the tax increases would have to be passed onto the middle-class.
Connecticut’s reliance on its high income residents has grown dramatically over the past years. In 2002, residents earning over $500,000 per year paid 23.7 percent of the Connecticut’s income tax revenue. By 2014, those same filers paid 44.7 percent – over $4 billion.