In 2008, Connecticut took out a $2 billion pension obligation bond in order to boost its teacher pension fund, which the state had underfunded for decades. The timing was calamitous as the country entered into the Great Recession which saw stock markets and real estate values tank – a period ...
Appropriations Committee Says Municipalities Should Pay Teacher Pensions, Despite “Error” in Their Budget
Early reports of budget recommendations from Connecticut’s Appropriations Committee showed the Committee rejected Gov. Ned Lamont’s proposal to force municipalities to cover a portion of the state’s teacher pension costs.
But that major point of divergence from the governor’s budget turned out to be a mistake.
At a press conference held before the Appropriations Committee met to vote on its budget recommendations, co-chairs Rep. Toni Walker, D-New Haven, and Sen. Cathy Osten, D-Sprague, told reporters the divergence from the governor’s budget was due to a “miscommunication” with the Office of Fiscal Analysis which drew up the budget plan.
“In regard to rolling out some of the costs to municipalities, we believe that we should consider that,” Osten said. “There was an error in the budget documents regarding that piece.”
Walker and Osten said they are recommending municipalities cover a portion of teacher pension costs but will move forward with a vote on the budget as it is but “will continue the discussion.”
Municipal leaders have largely rejected the proposal to shift a portion of teacher pension costs onto cities and towns – an idea that originated in Gov. Dannel Malloy’s administration – saying it will increase the property tax burden on residents.
Connecticut’s Teachers Retirement System presents one of the most daunting problems for the state. Left alone, the cost of TRS could rise from $1.2 billion to upwards of $6 billion per year by 2032, according to projections from both the Center for Retirement Studies at Boston College and the Office of the State Treasurer.
Lamont’s proposal would shift 25 percent of the “normal cost” of teacher pensions – about $71 million — onto towns and cities, although distressed municipalities, including both Osten and Walker’s districts, would pay only 5 percent of that cost under the governor’s plan.
The normal cost does not include costs for unfunded pension liabilities due to inadequate savings by the state and a $2 billion teacher pension bond taken out in 2008.
The governor is proposing to reamortize the teacher pension debt, a complicated and potentially risky plan for Connecticut’s bond rating, but the chairs of the Appropriations Committee said they supported the idea.
Although the Connecticut Council of Small Towns has rejected any call for municipalities to cover teacher pensions, the Connecticut Conference of Municipalities has said it would only back the idea if municipalities could find additional sources of revenue.
Other ideas to prop up the teacher pension fund have included transferring Connecticut lottery revenue to the pension fund and selling off state properties.
Osten and Walker said they would take responsibility for not making the teacher pension issue clear to the OFA for writing up the budget.
“We’ve said out loud that we believe there may have to be a need for municipalities to pay into the teacher pensions. We planned on having that in the budget document,” Osten said. “There was an error in the budget documents that we noticed this morning after they were already printed.”
The co-chairs said the Finance, Revenue and Bonding Committee will take the lead on whether teacher pensions costs should be shared with towns and cities.
“We do not know what Finance’s recommendations are going to be,” Osten said. “So, we have no idea if that is their stance or not.”
The Finance, Revenue and Bonding Committee will release their budget recommendations later in the week, which may also include tax increases on wealthy residents or an expansion of the state sales tax.
In March of 2019, the City of Hartford won a number of cost-saving provisions in an interest arbitration decision between the city and the Hartford Municipal Employees Association. The stakes were high for Hartford, which in 2017 had been hit with a costly arbitration decision involving the same union that ...