Gov. Ned Lamont will seek concessions that could reduce pension benefits to future retired state employees by more than $130 million per year — a move that was immediately met with resistance Tuesday from union officials.
The governor also announced Tuesday he would revive a controversial proposal to share a portion of those costs with cities and towns — albeit a smaller share than his predecessor, Gov. Dannel P. Malloy, initially sought in 2017. And Lamont also offered a few more details of his plans to broaden the sales tax base.
‘Outdated policies … are no longer working’
“While I love history and tradition, there is no reason to continue with bad or outdated policies that are no longer working for the people of this state,” Lamont said Tuesday. “Taxpayers are tired of hearing this year after year, and rightfully so. This is the ‘Land of Steady Habits,’ but we can’t continue along the same path and expect that things will fix themselves. Our state needs to make real, substantive structural changes to facilitate a sustainable financial future. As the economy and peoples’ habits change, we need to demonstrate that Connecticut’s state government can keep pace.”
Lamont’s first budget, which he will propose to legislators Wednesday, would reduce the cost-of-living increases awarded to future retired state employees, but only if returns on pension investments under-perform. The state assumes an average return on pension investments of 6.9 percent and COLA adjustments would be capped at 1 percent if returns fall short of expectations.
This could save as much as $131 million next fiscal year and $143 million in 2020-21.
But Lamont could not impose these changes without the agreement of state employee unions. Lamont reassured those unions repeatedly on the campaign trail last fall that he would seek “win-win” scenarios and “reforms” that reduced costs while benefitting both labor and state government.
For example, Lamont often suggested he would explore changes to how the state purchased medications to see if costs could be reduced without reducing the quality of employee health plans.
Lamont did announce Tuesday that his budget calls for state government to negotiate new health care price limits with hospitals, clinics and other health care providers to negotiate new price limits for various services. The governor’s budget also proposes expanding the state employee health enhancement plan and other wellness programs. The goal is to save $50 million from these initiatives in the first year of the governor’s new budget, and $135 million in the second.
The State Employees Bargaining Agent Coalition’s response Tuesday was swift and clear.
“To be clear: we will not be part of asking for still more sacrifices from state employees, who have already given so much for the people they serve,” the coalition wrote. “We will, however, continue working with the Lamont Administration and the General Assembly on “win-win” solutions for achieving efficiency and that will benefit everyone. Additionally, we will continue fighting for a fair budget that empowers all to thrive together here in Connecticut.”
Lamont’s proposal would mark the fourth time in the past decade that state employee unions have been asked to provide wage or benefit givebacks to help avert deficits.
Unions granted a wage freeze and health and pension concessions in 2009 to Gov. M. Jodi Rell and in 2011 and 2017 to Malloy.
Lamont also is trying to avert significant potential deficits. Based on projections from nonpartisan analysts, and a revised revenue forecast issued Jan. 15, state finances — unless adjusted — are on pace to run $1.5 billion in deficit in the 2019-20 fiscal year. The potential gap grows to $2 billion in 2020-21.
But Lamont doesn’t have the same leverage that Rell and Malloy had to induce worker givebacks.
The 2017 concessions deal exempted many unionized workers from layoffs for four fiscal years, running through June 30, 2021.
The only exceptions are state police troopers — who declined to accept a wage freeze as part of the 2017 deal — and workers hired after July 1, 2017, when the concessions agreement took effect.
Sharing teacher pension costs with municipalities
Full details of the governor’s plan to share teacher pension costs — including when the cost-sharing begins and how it will be phased in — weren’t released Tuesday.
But Lamont’s plan is based on a sliding scale that asks Connecticut’s poorest communities to pay the least and its wealthiest ones to pay the most.
When it comes to the state’s required annual contribution to the teachers’ pension fund, Lamont will ask municipalities to pay a portion of the “normal cost.” This is an actuarial term referring to the full amount that must be set aside annually to cover the future pensions of present-day teachers.
According to Comptroller Kevin P. Lembo’s office, this represents just 15 percent of the annual payment.
The remaining 85 percent of the annual contribution — and the part that’s projected to skyrocket over the next decade-and-a-half — involves covering Connecticut’s past fiscal sins. This would remain the state’s responsibility.
Between 1939 and 2008, legislatures and governors routinely shortchanged the pension fund, contributing billions of dollars less than recommended — and forfeiting billions more in potential investment earnings in the process.
As Connecticut tries to reverse decades of fiscal irresponsibility, the annual payment — $1.3 billion this fiscal year — is projected to spike between now and the early 2030s, peaking at anywhere between $3 billion and $6.2 billion.
The projection for next fiscal year’s contribution is $1.39 billion and 15 percent of that payment is $209 million.
But Lamont also hopes to shrink the bill both for the state and for municipalities.
The governor is working with state Treasurer Shawn Wooden to restructure annual contributions into the fund in the coming decades. In other words, the contribution still would rise into the early 2030s, but not as sharply. After that the contribution would drop, but not as rapidly as currently projected.
Full details of that plan weren’t available Tuesday. But Lamont said the overall contribution to the teacher’s pension will drop $183 million below projections next fiscal year and be $189 million less than originally projected in 2020-21.
“The plan to restructure payments into the Teachers’ Retirement System represents a new road map for Connecticut’s fiscal future and stability, while minimizing the impact on taxpayers,” Wooden said. “It also will allow scarce resources to be directed to the right priorities like economic growth, education, and infrastructure that can move our state forward.”
Malloy originally proposed in February 2017 that municipalities cover one-third of all teacher pension costs, recommending an initial collective bill of $400 million.
More importantly, that bill might have risen dramatically over the next 10-to-15 years as the pension contribution potentially spikes. The “normal cost,” which Lamont’s plan relies upon, is projected to remain relatively stable going forward.
Not surprisingly, Malloy’s 2017 proposal met with fierce opposition from the Connecticut Conference of Municipalities and from the Connecticut Council of Small Towns, who argued covering a share of the fastest-growing line item in the state budget would devastate local spending plans.
Municipal advocates remained wary of the cost-sharing Tuesday.
“We are very concerned that the governor’s proposal to shift teachers’ pension costs to towns will overwhelm property taxpayers in many small towns throughout Connecticut,” said Betsy Gara, executive director of COST.
Joe DeLong, executive director of the Connecticut Conference of Municipalities, said CCM would closely review Lamont’s proposal once all details have been released.
Eliminating sales tax exemptions
The governor also provided a few more details Tuesday about his plans to close sales tax exemptions.
The administration said its proposals to repeal or reduce exemptions should raise $292 million next fiscal year and $505 million in 2020-21.
Lamont already has said he would eliminate the partial exemption for digital downloads. And while he didn’t release a full list of goods and services that no longer would be exempted, he said “most other exemptions currently on the books” would go. Examples he listed range from horse-boarding and boat storage to campsite rentals.
The administration had researched eliminating the sales tax exemptions on groceries and prescription medications, but decided to leave them in place.