Gov. Dannel P. Malloy was praised by the Hartford business community Monday for the agreement he reached last week with a union coalition to avoid a spike in pension payments for state employees.
Webster Bank Chairman and CEO Jim Smith said businesses want stability and the pension agreement helps move the state in the right direction.
It’s not necessarily a celebration, according to Smith, because the annual contribution to the pension fund will increase over the next few years, but not by as much as it would have if nothing was done.
“It is a bullet dodged,” Smith said. “It’s an indication of just how deep the hole is we all want to dig out together.”
Smith made his remarks at the MetroHartford Alliance Rising Star Breakfast at the Hartford Hilton Monday morning.
In introducing the governor, Smith said Malloy has had to deal with the “ghosts of legislatures past and some governors past, who curried favor and votes and hurt the taxpayers in the process by making overly generous promises to our state workers and then not funding those promises for decades.”
The contribution the state is required to make to the state employees pension system has grown from $800 million to nearly $1.6 billion since Malloy was first elected in 2010.
Smith said the annually required contribution next year is almost the same amount as the $1.3 to $1.5 billion deficit the state is facing in 2018.
He said if the contributions to the Teacher’s Retirement Fund and the other post-retirement benefit fund are included, the amount the state will spend in 2018 will be around $3.5 billion. That’s more than 20 percent of the nearly $20 billion state budget.
It was a little more than a year ago that Malloy found himself at odds with the business community when after campaigning on a promise not to raise taxes, he signed a budget that increased taxes. After an outcry from business lobbyists he was able to modify some of the tax package in 2015, but in the end taxes still went up.
Oz Griebel, president and CEO of the MetroHartford Alliance, said the business community will support anything that brings stability to the state budget. He said he agrees with Malloy’s characterization that it’s progress even if it doesn’t necessarily lower the payments over the immediate future.
“This is a big step forward,” Malloy said in describing the deal.
Malloy, who was first elected in 2010 after serving for 14 years as Stamford’s mayor, said he ran a city with a pension fund that was 125 percent funded. He then ran for governor of a state with a pension plan that’s only 42 percent funded and it didn’t have an actual plan for how to fund those things.
He said there were missed opportunities in Connecticut’s history.
But in the interest of moving Connecticut forward, he reached a deal with the labor unions that has the state contributing more to the pension plan quickly and then sustaining it at a higher level for a longer period of time.
“It really is progress that’s being made,” Malloy said.
Smith said he would prefer for the state to move toward defined contribution plans, instead of the current defined benefit plans, but he left it at that.
Republican lawmakers were initially critical of the agreement.
House Minority Leader Themis Klarides, R-Derby, said Friday that the proposed pension plan pushes off filling the gaping hole because it does not change the relationship state employees have with the state regarding their contributions to the plan.
“We appreciate all the work that went into this proposal but it does not include critical issues such as pension benefits and individual contributions that must be addressed if the state is serious about fixing the retirement system,” Klarides said. “These plans will grow increasingly unaffordable for future generations. Quite simply, our children and grandchildren will get stuck with the bills.”
Senate Republican Leader Len Fasano said the proposal is an “incomplete bailout of a pension system that’s completely out of control.”
He said simply refinancing part of the debt under a new amortization schedule is not the structural change Connecticut needs.
Like any labor agreement the General Assembly can allow it to go into effect 30 days after it convenes in January or hold a vote on the contract. Generally, the only reason to hold a vote on a contract would be to vote down the agreement. There’s no indication from Democratic leadership that a vote will be held.
“On its face, it appears that this agreement takes a balanced approach to ensuring that Connecticut meets its long-term obligations while reflecting the reality of financial markets,” Adam Joseph, a spokesman for the Senate Democratic caucus, said Friday. “Over the last six years it was the Democrats who, for the first time in Connecticut’s history, fully paid our pension bills, reversing decades of inaction by previous legislatures and governors.”
House Majority Leader Joe Aresimowicz, D-Berlin, said it “is a great step toward increasing stability and managing the long-term obligations of the state, and shows the willingness by all parties to come together for the benefit of Connecticut taxpayers and the health of our future economy.”