Even if Gov. Ned Lamont gets his tolling bill through the General Assembly during a special session, his plan, the budget and proposed reductions to the gasoline tax and bus fare would amount to $288 million in either less revenue to the Special Transportation Fund or increased public transportation subsidies. ...
Warren Buffet Warns Businesses Away From States with Big Pension Problems
In an interview with
CNBC, famed investor Warren Buffet warned companies to stay away
from states facing major pension problems, a blow to Connecticut which has one
of the worst-funded state pension systems in the country.
“If I were relocating into some state that had a huge unfunded
pension plan, I am walking into liabilities,” Buffet said in the interview.
“Because I mean, who knows whether they’re gonna get it from the corporate
income tax or my employees – you know, with personal income taxes or what.
According to the latest valuations, Connecticut has $21.2
billion in unfunded pension liabilities for its State Employee Retirement
System, meaning the system is only 38 percent funded.
Connecticut’s Teachers Retirement System is only 57 percent
funded with an additional $13.1 billion in unfunded liabilities, placing
Connecticut’s total unfunded pension debt for its two major funds at $34.3
However, those numbers are based on the state’s estimated rate
of return — or “discount rate” — for pension investments, which
critics argue may be too high. Some studies have
placed Connecticut’s unfunded pension liabilities at over $100 billion when
using a discount rate based on bond returns.
Connecticut’s pension debt represents one of the fastest growing
fixed costs in state government, driving budget deficits for the foreseeable
future. The annual cost of SERS is expected to grow from $1.8 billion this year
to $2.2 billion by 2022.
The teachers pension system is in arguably worse shape, with
costs threatening to grow upwards of $6 billion per year by 2032, depending on
investment returns, according to a study by the Center for Retirement Research
at Boston College.
Buffet’s warning about increasing tax pressure to deal with
state pension liabilities has already begun to come true in Connecticut.
Gov. Dannel Malloy said that all the revenue raised by the 2011
and 2015 tax increases went to pay for pensions, and, as part of his budget
proposal to bridge a $3.7 billion budget deficit, Gov. Ned Lamont is keeping a
10 percent corporate surcharge meant to expire.
Buffet blamed lawmakers in various states who have refused to
take on the pension issue over the years. “But the politicians are the ones
that really haven’t attacked the issue,” Buffet said. “They’re gonna have to
raise a lotta money.”
Connecticut has underfunded its state employee pension fund for
decades through a series of negotiated agreements between governors and the
State Employee Bargaining Agent Coalition.
Although the state passed a law to fully fund SERS
by 1985, that law was quickly overridden by contract negotiations
between SEBAC and governors Lowell Weicker and John Rowland.
Connecticut is one of only four states which sets employee
retirement benefits are set through collective bargaining agreements.
Conversely, teacher pensions are set legislatively, but the
state underfunded that pension system as well. Connecticut then tried to fix
the problem with a $2 billion pension bond in 2008 which is now ham-stringing
efforts to avoid a major spike in state pension payments.
Other than raising teachers’ pension contribution by 1 percent,
TRS has remained virtually untouched, although it is getting attention from
Lamont who — like his predecessor — has recommended forcing municipalities to
pay part of the teacher pension costs, extending the repayment period and
lowering the assumed rate of return.
Malloy extended the payment period for unfunded state employee
pension liabilities until 2046 to prevent a major spike in yearly costs and
created new pension tiers which scaled back pension benefits for employees.
Despite the Malloy administration breaking with past governors
and fully funding pensions, the liabilities have continued to grow, driving
state budget deficits.
However, Malloy also extended the SEBAC agreement with state
employee unions which set retirement benefits until 2027. Essentially, the
state can’t make any changes to the pension system unless government union
leaders are willing to come to the table.
And that may prove a tough sell. The 2017 SEBAC agreement
guaranteed no layoffs until 2021, meaning the Lamont administration has little
leverage to coax concessions from union leaders.
During his budget address, however, Lamont said he rejects calls
that Connecticut needs a “Wisconsin moment, where we walk away from collective
bargaining.” Instead, Lamont said the state needs a “Connecticut moment” to
show that collective bargaining works.
Lamont’s call for a “Connecticut moment” was related to a
proposal in his budget to tie cost of living increases for state retirees to
the market performance of the pension fund. Lamont estimates this change –
which would have to be negotiated with SEBAC – would save the state $141
million, but labor leaders are already rejecting the idea.
Buffet’s warning may not bode well for Connecticut, which has
lagged behind the rest of the country in economic growth and job creation and
struggles with attracting businesses due to a high tax rate, high cost of
living, and on-going budget deficits.
Days after United Technologies announced it will move its corporate headquarters to the Boston area following a merger with Raytheon, a new policy paper from the Yankee Institute highlights many of the mistakes made by Connecticut regarding business in the state — especially forking over money to corporations. Coauthored by ...