Warning – Malloy likely to propose shifting State’s massive unfunded liability problem onto our children

Since taking office in January 2011, Governor Dannel Malloy’s fiscal policies have been based on a reckless strategy of coddling the rich, record cuts to Connecticut’s public colleges and universities, reducing the availability of vital public services and undermining public education … all while shifting more and more of the burden to pay for public services onto Connecticut’s regressive and anti-Middle Class property tax system.

Some will remember that upon his arrival in the Governor’s Office, Dannel Malloy whined about the fact that he had “inherited” a $3.7 billion budget shortfall following the fiscally irresponsible policies of Governor Jodi Rell and the Democratic-controlled Connecticut General Assembly.

However, rather than use his time in office to put the state back on track, Malloy’s irresponsible budget tactics have further exacerbated Connecticut’s fiscal problems.

Proof of this growing disaster can be found in the reality that as the Malloy administration prepares to propose Connecticut’s next state budget, the governor and his staff are facing a projected biennial budget shortfall in excess of $3.3 billion and growing.

Will this be the year that Governor Dannel Malloy finally takes the steps necessary to confront the budget problems challenging the state?

The answer is almost certainly a resounding NO!.

Sources close to Malloy are reporting that the neo-liberal politician’s “solution” to Connecticut’s fiscal crisis will be to propose a budget full of gimmicks, all the while dumping the responsibility for dealing with the state’s catastrophically high debt and unfunded liabilities onto our children and future generations.

Behind closed doors, Malloy and his team have begun the task of putting together the state’s FY18-FY19 proposed budget.  Knowledgeable sources suggest that this new budget will be built on more cuts to vital services, shifting even more of the burden for a college education onto the backs of Connecticut’s students and their families and significantly reducing the amount of municipal aid, thereby further increasing the property tax rates on Connecticut’s middle income families.

Equally appalling is the growing probability that Malloy, with the support of the legislature, will simply walk away from the state’s obligation to confront its $74 billion in debt and unfunded liabilities.

For decades Connecticut state government has refused to properly fund its state employee and teacher pension and benefit plans.

Making matters even worse, Malloy and the legislature have been using the state’s credit card in inappropriate ways, including Malloy’s much heralded corporate welfare program designed to reward companies he favors.

Now all of those “chickens are coming home to roost,” but rather then step up and take action to reduce state debt and adequately fund pension and benefits, it now appears that Malloy will simply propose dumping the burden onto Connecticut’s children and future generations.

While facing the fundamental obligation to do what is right, their operating motto seems to remain – Don’t do today what you can put off until tomorrow – no matter how devastating that delay will be for our children and those yet to come.

If Connecticut voters are not outraged, they aren’t paying enough attention.

  • Bubba_Ganoush

    Very scary when the ‘left’ and ‘right’ can so agree on something like this…poorly managed by any standards!
    Good article Jonathan!

  • JMC

    Jon, you are again correct. And let’s recall: four or five years ago the Dems jacked up taxes to “fix” the State’s revenue problems. They immediately fell into an orgy of new spending and entitlements and blew every penny, resulting in a new crisis. So the Dems will raise taxes – and blow them again on social spending for votes. It’s what they do. Reinforcing dysfunction is their specialty. The opioid crisis is their latest binge. Malloy was supposed to beam up and out of a ruined CT next year to the DC Beltway like Chris Murphy, but now he’s stuck with his party’s mess here just as we are.

  • James in Mfg Acc’t

    Jonathan you said:

    “For decades Connecticut state government has refused to properly fund its state employee and teacher pension and benefit plans.”
    This statement hasn’t been accurate for decades. For example, the State Employees Retirement System (SERS) has been funded at 96.75% of the (actuarial) Annual Required Contribution for the 21 years ending with the last actuarial report (6/30/2014). The problem is the benefit levels that our state employees (and Teachers) are accruing right now. From 6/30/2010 to 6/30/2014 the Actuarial Accrued Liability grew from 21.054 Billion to 25.505 Billion, an increase of 21% in 4 years despite taxpayers contributions of 4.079 billion. The TERS Actuarial Accrued Liability, in the 4 years ending 6/30/2016 grew from 24.862 B to 29.840 B, an increase of increase of 20% despite taxpayers contributions of 3.696 B. Even these liabilities are understated primarily due to the unrealistic return on investment assumptions (8%) baked into the Actuarial reports.
    The current levels of public employee retirement benefits are unsustainable. Although CTTeachers pay in an amount similar to Social Security (6.2%) their pension benefit far exceeds that of a SS worker who qualifies for the maximum SS benefit.

    • jonpelto

      yes… but….
      The funding plan does not properly compensate the failure to allocate funding in the early years, therefore, we have been on a collision course for decades. Tier 1 (the more generous pension plan) was adopted by the legislature without union negotiations and 97% of Tier 1 people have already retired. Tier II as a short-term farce while Tier IIA was the least generous pension plan in New England. All of that is now replaced with Tier III which costs about 3% a year, nearly a 1/3rd of Tier 1. The problem was the state’s adoption of a plan but it failure to fund that plan until the damage was done (Tier 1). As to the generous nature of the system, I think reasonable people would agree that is true for the post employment benefits which are separate – but related – to the underlying problem.

      I’m not saying you are “wrong” but the systemic failure is deeper than simply whether the state has been “paying” pursuant to the actuarial amount you cite.

      That said, thank you for making the problem clearer than I had in the original post.

      jonathan

      • James in Mfg Acc’t

        jonathan,
        If 97% of the Tier 1 have already retired why do we see the actuarial liability keep increasing? The unfunded amortization plan (Tier I), if I recall correctly, was started in the early 90’s and was to be fully funded in 40 years (early 2030’s). We are 25 years into that amortization and there should be no actuarial surprises. But every valuation we see the liability grow.
        The TERS liabilities are growing very fast also and there are no Tiers. TERS represents more than 1/2 of the overall problem.
        Tiier II 3% a year. I do not believe that. Please show us the calculations.
        There has been a lot of emphasis from the administration and the unions that the big problems were created in the past, but the numbers are showing that we have a current problem and every two years that accumulates and is reclassified as “prior unfunding”. We need to better understand the true cost of the current pension expenses.

    • —perturbed

      James, you are sadly misinformed.

      You really don’t have a clue about this topic. It doesn’t do anyone any good to spout off information that’s just plain wrong, though it might make your feel better.

      Here, if you really want to understand exactly how we got into this problem, in terms even a layperson can easily understand, please read the study linked below. It includes a forensic analysis.

      http://crr.bc.edu/wp-content/uploads/2015/11/Final-Report-on-CT-SERS-and-TRS_November-2015.pdf

  • 4H

    When is the population of Tier I beneficiaries suppose to top out? When the number Tier I beneficiaries begins to shrink, should that be self-correcting?

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  • —perturbed

    Jonathan,

    I thought your were more intellectually honest than this type of attack.

    So what, exactly, do you think should be done instead of the several measures now being taken to address the unfunded liability.

    What is your alternative?

    To sit there and throw stones at legitimate solutions without identifying even a hint of an alternative is beneath you.

    —perturbed