HARTFORD, CT — Gov. Ned Lamont has quickly learned that Connecticut’s pension and debt obligations are among the largest cost drivers in government, and in order to fix the state budget he’s going to need to tackle them head-on, even if it upsets his friends in labor.
A week ago he announced that he was putting Connecticut on a “debt diet” and would be putting $500 million less per year on the state’s credit card. On Tuesday, a day before he released his budget, he announced that he would be looking for concessions from state employees, too.
“Our state needs to make real, substantive structural changes to facilitate a sustainable financial future,” Lamont said in a statement Tuesday. “As the economy and peoples’ habits change, we need to demonstrate that Connecticut’s state government can keep pace.”
Lamont believes Connecticut can show the rest of the country that collective bargaining works. As part of that belief he will ask state retirees to “share in the risk” of their pensions by reducing their cost-of-living increases in the years in which the State Employees Retirement System fund does not perform well. On the flip side if the fund does better, then the cost-of-living adjustment would be shared at a higher rate.
In years where fund investments do not meet their anticipated market performance, cost-of-living adjustments will be limited to no more than one percent, in years where investment performance exceeds expectations that limit is increased to three percent and the limit is increased to five percent when the fund exceeds its targets by more than three percent.
It’s called “risk sharing” and it’s a feature that’s already part of the Teachers’ Retirement fund, but Lamont wants state employees to participate.
But for labor it’s a stick without a carrot.
The State Employees Bargaining Agent Coalition said that labor has done its part and doesn’t plan on asking is members to contribute more at this time.
“To be clear; we will not be part of asking for still more sacrifices from state employees, who have already given so much for the people they serve,” the State Employees Bargaining Agent Coalition said in a statement.
The coalition of bargaining groups said that state budgets already include $2 billion a year in savings as a result of three previous concession packages over the past decade.
“By agreeing to hard wage freezes, reduced pension and healthcare benefits, higher employee contributions and higher premium share costs, our members have done far more than their fair share to improve Connecticut’s fiscal health,” SEBAC said.
Lamont is also seeking to remove mileage reimbursements from pension calculations.
In order to get the risk sharing for retirees, he’s going to need the State Employees Bargaining Agent Coalition to approve it.
Lamont’s budget also will include efforts to generate savings in the state employees health care program.
Connecticut spends about $1.3 billion per year on healthcare for 200,000 state employees and retirees. Lamont, in working with state Comptroller Kevin Lembo, wants to reduce what the state pays by $50 million in 2020 and $135 million by 2021.
Lamont wants to do that by setting a ceiling on the maximum amount the state will pay hospitals for specific procedures. He also wants to create a new preferred provider network to give employees an option of getting healthcare through a certain medical provider.
“Connecticut is going to call the shots on healthcare quality and cost,” Lembo said. “The healthcare market should be driven by transparent prices for quality products and successful outcomes for patients, not by arbitrary pricing schemes that seek to squeeze the state and individual consumers out of anything they’re willing to pay for care.”
The more immediate problem Lamont faces is the Teachers’ Retirement fund.
Lamont will also be looking to re-amortize the Teachers’ Retirement fund out 30 years, and also lower the expected rate of return from 8 to 6.9 percent.
In order to make sure bond holders remain happy, the state will put $381 million in a reserve fund, which is enough to meet its obligations for a year. The state will then backstop that funding with revenue from the Connecticut Lottery.
Lamont’s administration believes this plan is in compliance with the bond covenant for the Teachers’ Retirement fund.
“The plan to restructure payments into the Teachers’ Retirement System represents a new road map for Connecticut’s fiscal future and stability, while minimizing the impact on taxpayers,” Treasurer Shawn T. Wooden said. “It also will allow scarce resources to be directed to the right priorities like economic growth, education, and infrastructure that can move our state forward. Creating this multi-faceted proposal in a matter of weeks is an extraordinary accomplishment and is evidence of what can be done when government works collaboratively.”
In addition, Lamont is proposing a municipal cost-sharing plan under which each municipality or local board of education will be responsible for at least one-quarter of the normal pension cost paid on its behalf by the state. Those municipalities who have teacher salaries above the statewide median will be asked to pay a share equal to each percentage point they are above the median. To avoid further burdening struggling towns and cities, all distressed municipalities will contribute five percent of their associated normal cost.
Betsy Gara, executive director of the Council of Small Towns, said her members are concerned about the proposal.
“Requiring towns to pick up millions of dollars in teachers’ pension costs without giving towns any opportunity to manage these costs going forward is simply unfair,” Gara said. “Towns have had no say in managing the teachers’ pension fund or in negotiating benefits or contribution levels. In addition, binding arbitration laws limit the ability of towns to negotiate teachers’ salaries, which contribute to benefit costs.”
“While we understand that Connecticut must tackle its pension obligations, towns must be given the tools to manage local costs and hold down property taxes,” Gara added.
The proposal isn’t as dramatic as former Gov. Dannel P. Malloy’s pitch to have cities and towns pick up one-third of the costs of the teachers’ retirement fund, but it will impact towns who pay teachers more than the median salary.