One of the three Wall Street credit rating agencies downgraded Connecticut’s bond rating last week citing its enormous unfunded pension liability, but Gov. Dannel P. Malloy said the plan he proposed Monday to improve the pension funding ratio had nothing to do with the bond rating.
Malloy released the plan to improve the woefully underfunded pensions fund at a press conference outside his Capitol office.
The plan seeks to achieve 80 percent funding in 2025 and 100 percent in 2032.
In order to get there, it eliminates the provisions agreed to as part of the State Employees Bargaining Agent Coalition agreement in 1995 and 1997 by then-Gov. John G. Rowland, and allows the state to increase its annually required contribution by about $125 million this year. Currently the State Employees Retirement System is funded at about 48 percent, according to the last actuarial valuation.
Malloy is also asking that the spending cap be excluded from pension contributions in excess of the annually required contribution. He needs a super majority of General Assembly to approve the removal of the spending cap to these types of expenditures.
In its report Friday, Moody’s Investor Services said it downgraded the state because it believed “funded ratios are not likely to improve significantly until closer to the end of the remaining amortization periods,” which is 21 years in the case of the state employees pension fund. Malloy said he actually briefed Moody’s on the pension proposal he unveiled Monday. He said he’s been working on this with his Budget Director Ben Barnes, since Barnes joined his administration last year.
Malloy said he will find the additional $125 million to put toward the pension fund as part of the budget he releases on Feb. 8, but didn’t give any hints as to where the money would come from.
“We are realigning our budget objects to get to this goal, which is to get to 80 percent funding by 2025,” Malloy said. “The significance of 80 percent is the standard by which states are normally rated.”
He said what he’s doing is “strong and sound fiscal management that will inure to the benefit of the taxpayers to the extent of almost $6 billion.”
“It is no honor to have the worst funded pension program in the country,” Malloy said. “That’s not something governor’s should aspire to; certainly not something I aspire to.”
He brushed aside questions that the plan was reactionary and said he always told the media, even on the campaign trail that he was going to do this. He said he was waiting until he was able to “restack” his relationship with state employees.
SEBAC leadership would have to agree to the provision, but Sal Luciano of AFSCME Council 4 and Robert Rinker of CSEA/SEIU Local 2001, who watched the press conference, said they don’t see any reason why state employees wouldn’t want the state to improve the funding ratio.
“It’s the responsible thing to do,” Luciano said.
Rinker agreed. He said making sure the pension fund is solvent is good for state employees.
The SEBAC provisions allowed the state’s contribution to shrink so eliminating them will increase the solvency of the fund. Rinker said first provision was added to the contract when the stock market was doing well, but any gain the fund saw from a healthy stock market disappeared in 2008.
House Minority Leader Lawrence Cafero said he applauded the effort but said the proposal contradicts the state’s fiscal position right now.
“The governor’s plan calls for a payment $125 million. Now this is coming on the heels of his letter to us on Friday, wherein he says if you take the [Generally Accepted Accounting Principles] money out of the equation, we’re about $75 million in the hole,” he said.
Without GAAP accounting, the state has a surplus of only about a million, he said. Cafero questioned where the money would come from.
“He said he’s not going to raise revenues but we also learned last week, by consensus revenues, that our revenues are plummeting,” he said. “The principle is fantastic, we have to pay our obligations, but how this statement from the governor jibes with the fiscal news we learned this week, plus other things he’s stated, is still a question to be answered.”
The governor’s proposal raises some other questions, he said. Malloy’s plan aims to eliminate provisions of SEBAC agreements, which were negotiated settlements, Cafero said. He questioned how Malloy could just eliminate two provisions he didn’t like.
Cafero said the fact that the SEBAC agreement can be re-opened, it might be a good thing if economic conditions get worse and the state needs more savings. Former Gov. M. Jodi Rell’s agreement with the unions contained an emergency clause for such a scenario Malloy’s does not, he said.
“It seems like the SEBAC agreement is still up for negotiation. If that’s the case and we do have an economic downturn that we all hope we don’t have, but if we do have it, would that mean the unions would come back to the negotiations table?” he asked.
Sen. Minority Leader John McKinney, R-Fairfield, said he agrees with Malloy that “paying off our pension debts is a good thing.” However, “doing so outside of the spending cap shows that Governor Malloy is still not serious about reducing unnecessary state spending and, further, that he is not serious about pension reform.”
He questioned why Malloy didn’t handle the situation when he negotiated health and pension benefits with SEBAC this summer.
“Clearly, his deal with SEBAC failed to adequately deal with our long term indebtedness. Real leadership requires real reforms and that is what is needed in these difficult times,” McKinney said.
As part of those negotiations Malloy asked all state employees to contribute 3 percent of their salaries for 10 years to the “other post retirement benefits,” which includes mostly retiree health care benefits. That portion of the pension fund is underfunded to the tune of $26 billion and accounts for a greater portion of the state’s unfunded liabilities. Malloy said he believes the 3 percent contribution from all state employees adequately addressed the deficiency in that account.