The cry for solutions has grown louder as Connecticut’s state budget crisis continues along its destructive path.
The latest round of budget cuts continued the Malloy administration’s pattern of going after hospitals, which apparently he thinks they deserve because their executives make a lot of money. Never mind that the money was for Medicaid payments, i.e. healthcare for poor people, who will now receive worse services.
Also hard hit were the mentally ill, people with developmental disabilities, the homeless, and people with addictions.
This is where we are: State lawmakers increased taxes and delayed tax hikes to the tune of $1.8 billion this year — the second highest collective tax increase in state history — and yet the state has cut, and continues to cut, vital services.
The rest of nation is about five years into an economic recovery — a recovery that somehow missed coming to Connecticut.
Now how did we get here?
That is the question addressed by the latest study — Unequal Pay: Public Vs. Private Sector Compensation in Connecticut — published by the Yankee Institute, where I am the policy director.
The study shows that public employees earn 25 to 46 percent more than their private sector counterparts who have similar education and experience.
A couple of years ago the author of the study, Andrew Biggs, released a nationwide study titled, Overpaid or Underpaid? A State-by-State Ranking of Public Employee Compensation. It took a broad look at public versus private sector pay. The results showed that Connecticut, far and away, had the greatest pay differential between public and private sector workers at 42 percent. (The relevant information is on Page 67 of the study).
The national average was a 10 percent premium in favor of public employees — our premium was four times that amount, and more than 7 percentage points higher than the next highest state.
Biggs, a resident scholar at the American Enterprise Institute, is a national expert on this topic. He has a Ph.D. from the London School of Economics, and he was deputy commissioner of the Social Security Administration.
So after we saw the national study we asked Biggs to do a deep dive for us into the Connecticut data to help us understand the sources of the differential. The result is the study released yesterday.
Biggs does his best to compare apples to apples — he compares workers with similar skills and education. Boiled down, the differential ends up being 25 to 46 percent, with the understanding that this applies collectively, not necessarily to each individual.
The reason there is a fairly wide band in the differential — 25 to 46 percent — is because it depends how you value public pensions. The 46 percent number is based on a “safe” annual growth rate of 2.5 percent for pension fund assets, while the 25 percent is based on a 5 percent growth rate. Biggs used only the 2.5 percent number for all states when he did the national survey.
Most of the 25 percent — let’s use the smaller figure for argument’s sake — is because of the huge difference between the benefits received by workers in the private versus the public sector.
The three biggest driving factors of the difference are public pensions, employee health coverage, and retiree health care.
Almost everyone these days who works at a private company is saving for their retirement through a 401(k), sometimes with a company match. For a brief time in American history, more companies paid pension plans similar to the ones public employees receive today, but their heavy cost — and risk — led companies to put retirement back in the hands of individual employees.
Many states have also adjusted their public pension plans — especially after the 2008 recession — opting for a 401(k) style plan, or a hybrid system.
But not Connecticut. Our pensions continue to be among the most generous in the nation, despite some small changes made in 2011. Biggs points out that a private sector worker would have to save between 26 and 53 percent of her salary in a 401(k) for her to have the kind of retirement savings necessary to match a Connecticut state employee’s pension.
And because of this, we also have the third largest pension debt in the nation — a huge albatross around our necks.
Even after pouring money into these pension funds the past few years, and despite several years of strong returns on the stock market, our pension debt continues to grow worse.
Connecticut lawmakers don’t need to look far for a better example of pension reform — Rhode Island, under the direction of then-treasurer, but now governor, Gina Raimondo was able to make significant headway on the state’s pension debt.
In Connecticut, state employee health benefits are 30 percent more expensive than private employee health benefits. Public retiree health benefits are also much more expensive — but comparing them is almost fruitless since almost no private companies provide this benefit any longer.
Now to solutions: If we expect to make the kind of changes that will lead to lasting benefits, lawmakers must reform public employee compensation. There are two choices — freeze or lower pay increases until parity is achieved, or reopen the SEBAC agreement to address pension and health benefits.
Connecticut cannot afford to maintain the status quo. This is not a “race to the bottom,” as many union leaders have claimed, but rather it is a return to fiscal sanity. We cannot continue to increase taxes and cut services when there is a huge, glaring disparity that is not being addressed — it isn’t fair to taxpayers, and it isn’t sustainable.
Connecticut can get back on track — the good news is we have some of the solutions we’ve been looking for. The bad news is it will be a heavy lift — it will take a lot of political courage to take on these very entrenched special interests. But it can be done, mostly because we’re at the point where it has to be done.
Suzanne Bates is the policy director for the Yankee Institute for Public Policy. She lives in South Windsor with her family. Follow her on Twitter @suzebates.
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