Politics & Policy

A Modest Blow for Fiscal Responsibility in Connecticut

Connecticut Governor Dan Malloy (Reuters photo: Jason Reed)
The GOP overcomes the Democrat–union axis to stop runaway public-employee pensions — eventually.

Sometimes there’s a fine line between kicking the can down the road and gradually phasing in difficult change. Not this year, not in Connecticut. The difference is a chasm. The sweetheart deal that Governor Malloy and his fellow Democrats in the General Assembly cut with state employee unions, the so-called SEBAC agreement, is protected by contract for a full decade — leaving meaningful reforms waaay down the road. The contract is the mother of all can-kicks.

Nevertheless, after the deal was struck, Republicans didn’t give up. They included in their own budget proposal several reforms starting after the expiration of the contract. Lo and behold, the GOP’s budget passed both houses of the Democrat-controlled Assembly.

Why in the world did Democrats in the deep-blue state of Connecticut vote for a GOP budget? Well, when the SEBAC contract came up for a vote in the Connecticut senate early last August, three fiscally conservative Democrats held out and voted yes only after receiving assurances from senate Democratic leadership that a twelve-point list of fiscal reforms would be instituted. Then, in the recent budget go-round, the Democrats included only three of the reforms in their budget, while the Republicans incorporated ten of the twelve. So the “threesome” voted for the GOP budget, which passed the senate by 21–15.

Five Democrats in the house of representatives followed suit, and the GOP budget passed the Democrat-controlled house by 78–72. Governor Malloy has vetoed the measure, arguing, amongst other things, that enactment of the reforms constitutes a SEBAC contract violation, even though the reforms take effect only after the expiration of the SEBAC agreement. Malloy & Co. say the budget risks an employee-union lawsuit.

So what happens now? Perhaps more Democrats will defect and the Assembly will override Malloy. If the Assembly Democratic leadership wants to block an override and pass their own budget, they’d better keep the reforms and bring the threesome back into the fold (along with their house colleagues). But wait, that runs the purported risk of a union lawsuit. On the other hand, can they pass a budget without the reforms — can they bully the threesome and the house fivesome into backing down, or buy them off somehow?

Even though the reforms take effect ten years hence, their impact is worth $322 million in savings today, according to actuarial analysis. Even though they will be realized only in years 11 through 30 of the actuarial time horizon, they impact the schedule of payments over the whole 30-year horizon, resulting in the $322 million reduction in the state’s required contribution to the pension fund over the fiscal 2018–fiscal 2019 biennium.

That’s a huge amount, especially when you consider that the savings have been inflation-adjusted at the 3.5 percent inflation rate used by the state actuaries Cavanaugh McDonald. At that rate, one dollar of savings in 2028 is worth only about $0.70 today, and a dollar in the 30th year, 2047, is worth only about $0.35.

Imagine the savings if those reforms were instituted now and realized for all 30 years, with the inflation-adjusted savings over the next ten years worth between $0.70 and one full dollar. Indeed, it would have been much better if the “threesome” had voted against the SEBAC deal in August. Not only would the savings have been much greater, but that would have avoided the anomaly of achieving savings by reducing funding of an already underfunded pension fund in the face of still mountainous obligations over the next ten years.

Even after these pension reforms, Connecticut state employees will still have far more generous pension and health-care benefits than most workers in the private sector.

What are the key reforms? First, the GOP budget bill eliminates overtime spiking, i.e., calculating pensions based on overtime earned in the years immediately prior to retirement, as opposed to average overtime over a full career. Spiking allows soon-to-retire employees to log extensive overtime hours in order to inflate their pensions. Second, the GOP budget requires state employees to contribute to their own pensions at the nationwide average for public employees, presently about 7 percent of salary/wages (versus 2–4 percent under SEBAC).

Third, it eliminates cost-of-living-adjustments (COLAs) for post-2027 retirees until the pension fund reaches 80 percent (presently, Connecticut is only about 35 percent funded). Fourth, for employees with salaries near and above the Social Security “tax and benefit base” ceiling ($127,200 annual earnings), it eliminates a pension supplement that “makes up” for “lost” Social Security benefits near and above the ceiling. Finally, the GOP budget mandates that future labor contracts not have a term of more than four years.

These reforms introduce basic fairness. Overtime spiking is a notorious abuse. Two other reforms bring Connecticut employees in line with national averages. The fourth simply applies to the state’s retirement program the same needs-based philosophy that governs the federal Social Security retirement program. Indeed, even after these pension reforms, Connecticut state employees will still have far more generous pension and health-care benefits than most workers in the private sector, where pensions have all but vanished and health-care costs have skyrocketed.

If these reforms are included in the ultimate budget, we’ll see if the employee unions file a lawsuit. It would be a court fight worth having. If they are not included and the “threesome” caves and votes for the budget anyway, well, so much for political courage — indeed, voters may wonder whether “fiscally conservative” means anything at all when describing Democrats.

READ MORE:

Connecticut Businesses & Population Are Fleeing the State

The Blue-State Model Collapses in Connecticut

Connecticut Moves to Restrict the Second Amendment to Rich People

Red Jahncke is the president of Townsend Group International, a business consultancy in Connecticut, and a freelance columnist who writes on public-policy issues.

Most Popular

Law & the Courts

The Last Trusted Prosecutor in Washington

John Durham may be the most consequential and least known figure in Washington right now. In May, U.S. attorney general William Barr selected Durham, a longtime prosecutor with a résumé so sterling it nearly glows, to investigate the origins of the special counsel’s probe into Russian interference in the ... Read More
Law & the Courts

The Last Trusted Prosecutor in Washington

John Durham may be the most consequential and least known figure in Washington right now. In May, U.S. attorney general William Barr selected Durham, a longtime prosecutor with a résumé so sterling it nearly glows, to investigate the origins of the special counsel’s probe into Russian interference in the ... Read More
World

WHO Failed

Since its inception 72 years ago almost to the day, the World Health Organization (WHO)  has been credited with the eradication of smallpox and the near eradication of other devastating illnesses, including leprosy and river blindness. This record of success makes the current corruption of the organization ... Read More
World

WHO Failed

Since its inception 72 years ago almost to the day, the World Health Organization (WHO)  has been credited with the eradication of smallpox and the near eradication of other devastating illnesses, including leprosy and river blindness. This record of success makes the current corruption of the organization ... Read More

The Eeyore Syndrome

In A. A. Milne's classic Winne-the-Pooh children’s tales, Eeyore, the old gray donkey, is perennially pessimistic and gloomy. He always expects the worst to happen. Milne understood that Eeyore’s outbursts of depression could at first be salutatory but then become monotonous. The outlook of the pessimist ... Read More

The Eeyore Syndrome

In A. A. Milne's classic Winne-the-Pooh children’s tales, Eeyore, the old gray donkey, is perennially pessimistic and gloomy. He always expects the worst to happen. Milne understood that Eeyore’s outbursts of depression could at first be salutatory but then become monotonous. The outlook of the pessimist ... Read More
World

How to Make China Pay

One of the big questions facing the international community today is how to hold China legally and politically accountable for all its dishonesty and harm to people around the world. According to reports, U.S. intelligence agencies have confirmed to the White House that China has deliberately understated the ... Read More
World

How to Make China Pay

One of the big questions facing the international community today is how to hold China legally and politically accountable for all its dishonesty and harm to people around the world. According to reports, U.S. intelligence agencies have confirmed to the White House that China has deliberately understated the ... Read More

The Trail Leading Back to the Wuhan Labs

It is understandable that many would be wary of the notion that the origin of the coronavirus could be discovered by some documentary filmmaker who used to live in China. Matthew Tye, who creates YouTube videos, contends he has identified the source of the coronavirus — and a great deal of the information that ... Read More

The Trail Leading Back to the Wuhan Labs

It is understandable that many would be wary of the notion that the origin of the coronavirus could be discovered by some documentary filmmaker who used to live in China. Matthew Tye, who creates YouTube videos, contends he has identified the source of the coronavirus — and a great deal of the information that ... Read More
Health Care

The Experts Lied to Us about Masks

When the stakes are highest, the truth counts the most. Or maybe when things get really serious, that’s when the people really can’t be trusted with the truth. It’s pretty clear which of these two ideas is the one that has been guiding elite medical, political, and journalistic institutions, isn’t it? ... Read More
Health Care

The Experts Lied to Us about Masks

When the stakes are highest, the truth counts the most. Or maybe when things get really serious, that’s when the people really can’t be trusted with the truth. It’s pretty clear which of these two ideas is the one that has been guiding elite medical, political, and journalistic institutions, isn’t it? ... Read More