The failure of the state employees’ to ratify the concession package and the unfunded pension liability were just two of the reasons that Moody’s Investor Services gave when it downgraded Connecticut’s outlook from stable to negative Tuesday.
The report was a mixed bag of both good and bad news. It applauded the state for tackling its budget deficit without one-time gimmicks, but said the layoffs, a result of the rejection of the concession package, will likely slow the state’s economic nascent recovery.
“Let there be no doubt that downgraded outlook in part represents a feeling from Moody’s that we’re not serious or have not demonstrated seriousness about funding our long term obligations to our employees,” Gov. Dannel P. Malloy told a group of Credit Union managers Wednesday morning.
But he remained optimistic and resolute that the state will have a balanced budget by Friday.
“We’ll take care of those issues. We’ll balance our budget. We’re going to move this state forward,” he said.
Without the $1.6 billion state employees’ concession package Malloy will ask the legislature Thursday for increased rescission authority to allow his administration to layoff nearly 5,500 employees and cut $54 million in municipal aid in order to balance the budget for the next two years.
However, even with the increased rescission authority Malloy’s hands are tied when it comes to tackling the state’s unfunded pension liability. The governor has to negotiate those changes to health and pension benefits with the State Employees Bargaining Agent Coalition and the current contract extends through 2017. Malloy said Tuesday he would work with the legislature to try and make the necessary statutory changes to ensure a sustainable relationship with state employees. Senate Democrats said Tuesday evening that they would be willing to work with him in that regard.
“I think Moody’s is as concerned as I am that when you have a pension fund that’s as unfunded as ours is and you’re not in a position to take the appropriate steps to address that then that’s gotta be a concern,” said Malloy. “I know cause I’ve spoken to them that they are very concerned with the long term unfunded obligations of the state of Connecticut.”
As of June 30, 2010, the funded ratio for Connecticut’s State Employees Retirement System was 44 percent one of the lowest in the country, according to Moody’s.
The rating agency said the low funding ratio of the state’s pension fund is the result of “generous bargaining agreements; early retirement incentive programs; and recent market returns that have been less that the assumed rates of return.”
But Malloy continued to remain optimistic. “An outlook is less important than a rating,” he said.
Malloy said he anticipates the outlook to improve once the state goes back to the market and has addressed “our long term systemic problem which is our unfunded, or underfunded benefit package, post employment.”