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Bad to Worse

The State of Connecticut faces a fiscal cliff brought on by a failure of governors and legislatures for the last five decades to save for pension and health care promises made to state workers and teachers. The yearly deficit each of the next two years is nearly 15 percent of the operating budget and is projected to exceed $5 billion over the next two years.

Governor Dannel Malloy for months has been negotiating with state employee unions, asking for $1.5 billion in savings over the next two years; otherwise, he threatened massive layoffs. Recently, the governor announced he’d reached a deal that achieved his targeted savings. In return, the governor told the unions that he’d extend their current contract for five more years, until 2027. As always, the devil is in the details.

I want to credit the state employee unions—which, at press time, hadn’t yet approved the deal—for coming to the table to negotiate while still under contract. This is certainly not required of them. I know many state employees and they are good, hardworking people who collectively bargained with the state. They’re not the bad guys—the guilty parties are the legislatures and governors who made financial promises for which they didn’t save.

That said, the negotiated contract that allegedly saves $1.5 billion should be rejected because it’s bad for taxpayers. Here are some of the headlines: State employees will take zero pay raises for three years. True, except in year three, all employees receive a lump sum payment of $2,000. In the fourth year, there’s a 3.5 percent raise plus 2 percent in step payments for a raise of 5.5 percent. This is the same in year five. That adds up to a hefty raise, plus the lump sum, over the course of the contract. Talk about kicking the can down the road.

Medical insurance cost shares will increase for all state employees by one percent per year, not to exceed 15 percent. Most state employees are already at 14 percent, so this is hardly a concession. New hires won’t go in to the state’s defined benefit plan, but instead into a hybrid pension plan, a combination of a defined benefit and a defined contribution plan. This is real progress. However, one of the biggest problems with the current pension is the amount of overtime that is able to be included in the pension calculation; 90 percent of overtime for this new tier of employees will be eligible for pension calculation.

Last, the governor guarantees no layoffs during the extended term of the new contract, hamstringing the next governor in dealing with what are sure to be continuing budgetary issues with rising retirement and health costs. Nobody believes that Connecticut, once this biennial budget is negotiated, won’t be battling more deficits. Finally, there’s been no actuarial study of the financial impacts of this deal.

For these reasons, when I speak to my legislators, I’ll encourage them to vote against the governor’s concession agreement.