Gov. Dannel P. Malloy will ask the legislature to change how it calculates state employee pensions and how it bargains for health benefits when it convenes Thursday for a special session.

The proposal   excludes overtime, longevity, and other fees currently included in the definition of base salary for the calculation of pension benefits after the expiration of the current State Employees Bargaining Agent Coalition agreement in 2017. It also says that at the expiration of the agreement, SEBAC will no longer be able to negotiate health and pension benefits on behalf of its members.

News of the proposed changes come less than one day after Malloy announced he plans to lay off nearly 5,500 state employees’ in the absence of a $1.6 billion concession package. Malloy’s proposal also asks for increased rescission authority up to 10 percent of any fund or $45 million of any line item. It would further grant the governor authority to cut municipal aid by 3 percent, but does not allow him to touch education funding.

Under Malloy’s proposal, longevity payments will no longer be a negotiable item in any collective bargaining agreement entered into after July 1. It will not take away longevity already earned by non-union employees, but would freeze it at the amount they were receiving before the new legislative language is approved.

Malloy’s Budget Director Ben Barnes said the capping of longevity payments doesn’t save an enormous amount of money initially, but over time it will save $20 million. Union longevity payments will be capped until they are phased out when contracts are renegotiated and non-union employees reaching their 10th year of service will not receive any longevity.

Barnes said the administration would have loved to eliminate longevity completely, but even non-union employees can claim a property interest in it and could take the state to court if they try to completely eliminate longevity. State employees currently receive the additional payment after they reach their 10th year of service and those payments, made twice a year, are increased every five years according to the schedule.

The bill also would restrict to 10 the number of accrued sick days for all state employees subject to collective bargaining rights.

Neither sick days nor longevity payments will be negotiable under arbitration, the proposal Malloy’s administration distributed at 2:42 p.m. states.

“I would point out that these are relatively modest proposals given what is going on in other states, in neighboring states,” Malloy’s senior communications adviser Roy Occhiogrosso said Wednesday. “They don’t undermine the fundamental principles of collective bargaining. What they do is make some modest changes to some of the provisions.”

The proposal also provides the state employee unions a window, until the end of August, to ratify the $1.6 billion concession agreement, which could keep the proposed changes from taking place. On Monday union officials tabled the final vote on that agreement.

Democratic lawmakers who consider themselves friends of labor said they’re willing to take a look at the proposals.

“Folks are willing to look at the big picture,” Sen. President Donald Williams said Tuesday evening after a telephone caucus. “This has really changed the dynamic. You had a reasonable concession package, everybody anticipated it would be widely accepted and approved… Folks are definitely willing to look at the big picture.”

Sen. Martin Looney, D-New Haven, said changes to overtime being included in pension is something the Senate Democratic caucus is willing to look at. He said there’s “broad based support for those kinds of modifications.”

“They understand we can’t do that right now that that would be prospective,” Williams said.

Majority Leader Brendan Sharkey, D-Hamden, said his caucus hasn’t had a lot of time to absorb some of the proposals Malloy made Wednesday, but it’s had enough time to “try and work on language that’s amenable to both Houses.“

Since Sharkey and House Speaker Chris Donovan haven’t met with members yet, they were trying to get a sense of where the caucus stood in regards to these proposals by phone and email.

“I’m confident we can take decisive action that does not cede our full authority to the governor, but gets us to where we all want to be,” Sharkey said.

House Minority Leader Lawrence Cafero, R-Norwalk, said he hadn’t spoken to Democrats about their stance on looking at collective bargaining but indicated he was absolutely open to it.

“If they tried the negotiations and concessions route and that has failed, and clearly it has, end of story, then I think we have to look at all the options we have available to us as a legislature as elected officials of this state to get our fiscal house in order,” he said.

“I think it is a very legitimate thing to revisit and I think the time to revisit it is now,” he added.

But labor leaders urged patience.

“We understand the governor’s concern for properly funding state employees’ healthcare and retirement security. Not only do we share that concern, our unions did something about it 30 years ago,” Matt O’Connor, SEBAC spokesman said Wednesday.

“Before state workers had collective bargaining rights, the health and pension plans were not properly funded. Collective bargaining created the obligation for the state to pre-fund employee benefits. Over time, contracts have proven a much more reliable way to ensure long-term, stable funding than unilateral actions by politicians,” he added. “Only by mutual agreement can we move quickly and effectively to provide stability for the critical public structures upon which our economy relies. That’s the best way to protect the services upon which people depend. And it will prevent a series of rolling layoffs—first in the public and then in the private sector—that endanger all of us.”

In addition to the labor changes, the special session legislation also gives Malloy the power to privatize any state government service.

The provision suspends for two years a section of state statutes that requires the state Contracting Standards Board to conduct a cost benefit analysis before allowing a service exclusively performed by state employees to be privatized.

“It would allow us greater latitude to privatize services during the next two years,” Barnes explained.

Occhiogrosso said it was too soon to speculate about which areas of government would likely be privatized.

“When you have potentially thousands fewer employees able to deliver certain services across state government then you have to take a look at each and every one of those services,” he said. “Where there are services that you want to continue to provide and you don’t have the ability to provide them with state employees then they’re going to need to be privatized.”

Malloy also decided to lower the Earned Income Tax Credit for poor families from 30 percent to 25 percent. The move will save $18 million.