Oz Griebel concedes that his proposal to defer state pension contributions is a gamble.
He just doesn’t believe that this approach poses any more risk than continuing along the problematic path of tax hikes and program cuts that have vexed state finances over the past decade.
In a recent interview with the CT Mirror, the independent gubernatorial candidate said he’s aware of the criticism that’s been directed at him since Sept. 13, when he said he would consider deferring a portion of the estimated $2.6 billion Connecticut owes next fiscal year to its pension funds for state employees and municipal teachers.
“I know we are trying to buy time, but buying time is not an insignificant thing to me,” he said. “I think this problem is going to be on top of us much sooner than anyone anticipates.”
The “problem” Griebel references are projections that the state’s annual pension contributions will skyrocket over the next 10 to 15 years.
According to a 2015 analysis by the Center for Retirement Research at Boston College, the teacher’s pension contribution, which currently stands at $1.3 billion, could exceed $6.2 billion by 2032. Even the less severe projections still have the cost topping $3 billion — and that’s assuming the state averages an 8 percent return on pension investments.
The state employee pension contribution, which is nearly $1.2 billion, also is expected to rise sharply, albeit not as much as the teachers’ pension payment. That’s because the state and labor unions agreed to shift more than $14 billion in payments owed between now and 2032 until after that date.
Even with that change, the annual contribution still is expected to reach $2.2 billion over the next five years.
These surging contributions, coupled with other factors, have state analysts projecting a $2 billion budget deficit in the first fiscal year after the election, and a $2.6 billion cap in the second.
Griebel already has said he would seek to tap Connecticut’s emergency reserves first. The Rainy Day Fund already holds $1.2 billion, and could have as much as $2 billion by next September.
The second step would be to seek spending cuts through efficiencies in state services and promoting regionalization at the local level.
But Griebel also concedes these measures and emptying the budget reserves wouldn’t be enough to cover the two-year gap.
So, his solution likely also would involve deferring hundreds of millions of dollars in pension contributions.
This has been done before.
Connecticut legislatures and governors saved nothing to cover promised pension benefits between 1939 and 1971, leaving future generations to pay for the retirement benefits for the state employees and teachers who served during that period.
And while the state began to save to cover pensions from 1971 through 2010, it routinely saved less than the amount fund actuaries said was necessary.
Griebel insists his approach would be different, for two reasons.
First, he said, he would attempt to mitigate those deferrals immediately by transferring other state assets, such as the Connecticut Lottery Corporations’ $300 million-per-year revenue stream, into the pension fund.
A trickier option would be to assign underutilized state land and buildings to the pension. Some might be sold and the proceeds used to bolster the fund. Even those that aren’t sold still would increase the pension funds’ holdings — on paper. The higher the value of the assets, the less the state must contribute in the short-term.
Secondly, Griebel says this would be a short-term deferral, giving his administration enough time to convince unions to grant more concessions, while also giving the state’s economy more time to grow. The goal would be to make those deferred payments to the pension fund as soon as possible after his first two-year budget.
The alternative, he adds, is to continue a pattern that has undercut the state’s economy for the past decade.
Connecticut governors and legislatures approved significant tax hikes in 2009, 2011 and 2015, Griebel noted, adding that key priorities like municipal aid and transportation have been short-changed over the same period.
“I don’t think what I’m proposing has any more risk than we are looking at now,” Griebel said.
But the head of the Connecticut AFL-CIO, Lori J. Pelletier, said Griebel’s approach not only duplicates the fiscal sins of the past, but is myopic in nature.
“We continue to have this laser focus on state employees and how much more they should give back,” she said. “There’s lots of other areas of the budget that we could look at.”
The state provides billions of dollars in sales, income and business tax credits and exemptions each year. Some of these tax breaks have strong support from most political circles and constituent groups, such as the sales tax exemption on groceries.
But others are never tested or reviewed to determine if they return any economic value, Pelletier said. And then there is Connecticut’s “shadow government,” the term labor leaders use for the millions of public dollars spent annually on contracts for private services — legal, architectural, planning, media and others.
Griebel said he is hopeful that unions would come to the table to discuss concessions, even though state employees already approved givebacks in 2009, 2011 and 2017. That last deal severely restricts the next governor’s ability to lay off workers. The main exceptions are non-union staff, workers hired after the concessions deal took effect on July 1, 2017, and the state police — who didn’t grant concessions.
All remaining workers are exempt from layoffs through the first two fiscal years after the election.
