State Employee Pension Agreement Crosses Finish Line -- Saving $570 Million Next Year

State Employee Pension Agreement Crosses Finish Line -- Saving $570 Million Next Year

CT News Junkie, February 1, 2017

By Christine Stewart

HARTFORD, CT—Republican legislative leaders added a lot of uncertainty to the fate of a deal to restructure the financing of state employee pensions Wednesday when they released their own plan mid-afternoon.

Shy one Democratic Senator for most of the day, Democrats, in the end, were able to finally approve the deal with the help of Lt. Gov. Nancy Wyman who broke the 17-17 tie in the evenly divided Senate. The House voted 76-72 to approve the deal with one Democrat voting against it and one Republican voting for it.

The pension refinancing plan negotiated by Democratic Gov. Dannel P. Malloy and union leadership in December 2016 would require the state to make contributions of as much as $2.3 billion a year to the pension fund. It also lowers the rate of return on pension investments, and upholds the 2032 deadline for paying off at least some of the unfunded liabilities.

The plan, which uses different actuarial techniques to smooth the escalating peak in payment obligations, also moves about $10 billion owed before 2032 into the future on a separate, 30-year amortization schedule.

The deal will save the state about $570 million next year, according to Malloy.

“If they reject it, it is pure politics,” Malloy said Wednesday afternoon when passage of the agreement was still uncertain.

But Republican legislative leaders suggested the state contribute $200 million more annually to cut the length of financing by seven years, and suggested increasing state employee contributions by 4 percent, and capping cost of living adjustments by 2 percent.

The later suggestions would have to be negotiated through collective bargaining and only the governor and the union have the ability to bargain.

After voting in favor of the deal last week in committee, Senate Republican President Len Fasano, R-North Haven, said he doesn’t believe the deal the governor negotiated is the best solution to the problem.

“Was this a plan to really put Connecticut on the right track on pensions or was this a plan to fix a budget,” Fasano said. “The reason we asked to have the matter postponed was only so we could look at different options. This may be the best. I don’t know.”

House Minority Themis Klarides, R-Derby, said they can’t know what the best choice is unless they know what the other choices may be. Klarides acknowledged that the governor and the unions are the only two entities able to negotiate, but argued they should be having parallel conversations.

Senate President Martin Looney, D-New Haven, said it’s disappointing that Republicans seemed to want to be part of an organized bipartisan process last week when many voted in favor of the deal when it was in front of the Appropriations Committee.

Balloon payment avoided back to top

Looney called the Republicans’ actions “erratic” and a “failure of one of the first tests of organized government.”

Looney said by failing to vote in favor of the plan it would subject the state to a “catastrophic balloon payment” of between $4 billion and $6 billion in the future.

“This is an unfortunate failure of willingness to govern in an organized, responsible, bipartisan way,” Looney added.

Looney said Republicans should be assured that they will look to reform state employee pensions this year, but not before they refinance the deal.

“We do expect that we’ll get to pension reform this year. That’s something we will do statutorily,” Looney said.

Sal Luciano, president of AFSCME Council 4 and a member of the Retirement Commission, said the reason they reduced the rate of return from 8 percent to 6.9 percent was because they had this “refinancing deal available.” He said reducing the rate of return without the deal in place adds more than a half-billion to next year’s budget hole.

Rep. Vincent Candelora, R-North Branford, said they negotiated this agreement for the short-term budget savings.

“Our children are going to be paying for it,”  Candelora said.

Malloy said Connecticut’s businesses supported the deal because they are concerned about the $6 billion payment that the state will face without an agreement.

“Frankly, anybody who votes against this is voting to lose jobs,” Malloy said Wednesday.

In written testimony, Connecticut Business and Industry Association economist Pete Gioia expressed support for the agreement, but not the pension fund’s overall health.

“We concede that without this agreement, which is essentially a refinancing of the state’s obligation, the state will be forced to make significant cuts to services, or yet again raise taxes–to unparalleled levels,” Gioia said. “However, we still need an agreement to overhaul the entire State Employees Retirement System.”

alloy said he’s still talking to labor leaders about what they can do to help with the state’s budget woes, but is not going to share those private conversations with the media.

According to Republicans and the business community, real structural pension reform includes ending the use of overtime pay to calculate pensions, which can double and even triple a retiree’s base pay, and stopping cost-of-living increases that exceed in percentage points what the pension fund earns annually.

Looney said those types of proposals will be discussed later this year.