There are times when a news article is so good, so complete that nothing more needs to be said, no analysis is needed. This article by Keith Phaneuf is exactly that. I’ve been writing and yelping about this subject a lot over the last few years. This article really nails the problem.
This is definitely a must read story.
Connecticut has about $9.4 billion in its pension fund and $21.1 billion in obligations
This translates to a “funded ratio” of 44%. (80 percent is considered fiscally healthy).”
The ratio was 52% percent in the 2008, but has plunged as a result of the drop in the stock market and investments, the decision by the Governor, state unions and legislature to defer $214 million in required pension payments and the increase in the number of retirees due to the unending use of early retirement incentives to “reduce the state payroll”.
One of the most critical issues is that “Further complicating matters, state employee unions agreed in 1995 with then-Gov. John G. Rowland to shift the pension contribution system from a level-funded 30 year schedule to a back loaded system that will force dramatic increases over the next few decades.” In essence the Rowland, the Legislature and the state and unions decided to go with a massive balloon payment system that allowed smaller payments in the short term in return for much more massive payments ‘down the road’.
Later has now arrived.
The required annual contribution is on pace to grow by 50 percent by 2017, double by 2026 and triple by 2038. Needless to say it is impossible to imagine a scenario in which Connecticut could make those payments without undermining the rest of the budget.
This year, as Governor Malloy is suggesting the need for record budget cuts, the state will need to dramatically increase its state pension payments just to keep the pension disaster from getting even worse.
This article should be mandatory reading for every single person associated or interested in budget, tax and policy issues.