Adamowski Pension Charade continues

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On August 29, 2013, “Special Master” Steven Adamowski was completing his second year under a $225,000 no-bid contract that the Malloy Administration had run through the State Education Resource Center.

The next day, August 30, 2013, “Special Master” Steven Adamowski was a Connecticut state employee, holding the title of Durational Project Manager.

Same duties, different employer.

Steven Adamowski is so “special” that the Malloy/Pryor Operation didn’t even bother to post the position or follow any type of competitive or open hiring process.

The words Steven Adamowski and Special seem to go hand in hand.

Although only certified teachers are allowed to participate in the State Teachers Retirement System, a loophole in the state statutes will allow Steven Adamowski, who IS NOT CERTIFIED to teach or certified be a school administrator; to use his new job in the Malloy administration to add years to his Teachers Retirement pension.

Alternatively, Adamowski can use his new state position to guarantee himself full retired state employee health benefits assuming he works for the state for five years.

As retired school teachers and administrators know, Connecticut’s teacher retirement health insurance program is limited and getting more and more expensive.

While retired state employees receive more substantial and less-expensive health insurance, retired teachers are facing higher and higher premiums.  Some retired teachers are coming face to face with the reality that they simply can’t afford even the more limited health insurance package that is available to them.

But thanks to Governor Malloy and Commissioner Stefan Pryor, Steven Adamowski will not only collect a pension from the Teachers Retirement System, but if he continues to play his cards right he’ll get to retire with the state’s retired state employee health plan that could be worth $20,000 or more a year…..for life.

But as noted above, Steven Adamowski is used to special treatment.

  • On the last day of the Connecticut General Assembly’s 2007 legislative session an amendment was added to a bill that allowed Steven Adamowski to serve as Hartford’s superintendent of schools despite the fact that he did not have the certification to be a superintendent in Connecticut.  He held that position for five years.  The only other person to benefit from that section of the Connecticut state statutes is none-other-than Paul Vallas (although they had to change the statute to try to fit his particular circumstances). 
  • Then, speaking of special treatment, in 2012, when Governor Malloy introduced his “Education Reform” legislation, Section 32 of Malloy’s bill sought to retroactively give Steven Adamowski Teacher Retirement pension credits for his time as Hartford’s superintendent.  Following widespread publicity about the end-run to boost Adamowski’s pension, the legislature removed the special language. 
  • Meanwhile, it was about the same time that Adamowski got his no-bid, $225,000 plus benefits contract to serve as “Special Master” of Windham.  His role was later expanded to serve as “Special Master” for both Windham and New London. 
  • The contract to serve as “Special Master,” included language that tried to allow him to tap into the Teacher Retirement System for his time as “Special Master,” but he was once again blocked from adding years due to his lack of teacher certification.

But now, thanks to the decision to make him a state employee, Adamowski is back in the driver’s seat, where is able to add years to his Teachers Retirement Pension or go for the more generous health benefits.

Whether you call him a Friend of Dan (FOD) or a Friend of Stefan (FOS) there is simply no question that Steven Adamowski is special!

News Flash: Mystery solved: Pryor’s appointment of Adamowski as state employee will push up Special Master’s pension!

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Governor Malloy and his Commissioner of Education have figured out a way to circumvent the Connecticut General Assembly and push up Special Master Steven Adamowski’s pension.

As a result of a 2006 change in the Connecticut State Statutes, Steven Adamowski was able to serve for five years as the uncertified superintendent of schools in Hartford, Connecticut.  However, as a result of a separate statute that limits participation in the Connecticut Teachers Retirement System to those who hold valid teaching or administrative certificates, Adamowski couldn’t add those years to the number of years he had collected when he served as a Connecticut teacher and administrator much earlier in this career.

So last year, hidden deep inside of Governor Malloy’s education reform bill was a change to the law that would have retroactively added those five years to Adamowski’s pension.  The move would have added tens of thousands to Adamowski’s pension since his salary was now in excess of two hundred thousand dollars.  But after the story appeared in Wait, What? the Courant and other media outlets, the legislators deleted the “Adamowski provision” from the new law and Adamowski lost his gift of five extra years added to his public pension.

That said, the effort to boost Adamowski’s pension resurfaced when Adamowski was given a $225,000, plus benefits, no-bid contract through the State Education Resource Center (SERC).  Adamowski’s contract included language that read , “Also, Dr. Adamowski will be eligible to continue membership in the Connecticut Teachers’ Retirement System.”

However, that attempt to boost his pension also fizzled when it was realized that while state law does allow the staff of the State Education Resource Center to be part of the State Teachers Retirement System only but only if they are “employed in a professional capacity while possessing a certificate or permit issued by the State Board of Education.”

Since Adamowski is not certified and doesn’t have a valid teacher or administrator certificate, he could not add the time he worked at SERC as Windham and New London’s “Special Master.”

But then last week, out of the blue, Commissioner Pryor announced that with the State Board of Education’s approval, Steven Adamowski would no longer be working through SERC but would, instead, become a state employee.

Pryor never posted the new state position.  He failed to go through any recruitment or review process.  He simply announced that he was giving Steven Adamowski a senior management position in the state agency. at  a cost of $163,000.

Pryor did make a point of mentioning that Adamowski would be taking a $63,000 pay cut.

As the Courant reported at the time, Kelly Donnelly, Commissioner Pryor’s spokeswoman explained that, “the cut in pay brought Adamowski’s salary in line with that of other top-level salaries in the state agency.”

And Adamowski sent an email to the Courant saying that the cut was “something I can live with.”

Adamowski also reported that he had agreed to carry on his work, “due to my commitment to the schoolchildren of Windham and New London who need better schools and to the unfinished nature of the turnaround work in both Districts.”

At the same time, Adamowski told the New London Day that he accepted the move from being a SERC employee to being a state employee because, “The SERC salary was not realistic.”

But as Wait, What? readers from the coverage posted here, there were just too many unresolved questions to make the Pryor/Adamowski story believable.

The primary and nagging question was why would Adamowski move from a job that paid $225,000 plus state-employee like benefits to a job that paid $163,000 plus state employee benefits unless there was some other piece to the puzzle.

Of course, the reasonable assumption was that it had to be a last-ditch attempt to boost Adamowski’s pension…But the question was how; since Teachers Retirement credits can’t be moved to the State Employee Retirement System and State Employee Retirement credits can’t be moved to the Teacher’s system.

Well the mystery has finally been resolved and the answer lies in exactly a dozen words deep inside the existing state statutes!

Subsection 26 of Section 10-183b of the Connecticut State Statutes defines the term “Teacher” for the purposes of the Connecticut Teachers Retirement System…And subsection (D) of subsection 26 of Section 10-183b provides that “a member of the professional staff of the State Board of Education” may elect to be in the Teachers Retirement System instead of the State Employees Retirement System.

The phrase, “a member of the professional staff of the State Board of Education”is not limited by whether or not the individual is certified to serve as a teacher or administrator.

Since the State Retirement System is generally more generous than the Teacher Retirement System, the provision was obviously created so that if a Connecticut school teacher or administrator worked for a time at the State Department of Education they wouldn’t be forced to be in two different systems…the Teacher Retirement System for their teaching years and the State Employee Retirement System for their time at the Department of Education.

Instead they could be a teacher, go to work for the state Department of Education and then return to working in a school district.

But by leaving off the reference to being an employee of the State Department of Education AND  a certified  teacher or administrator, the laws opened up a massive loophole that Steven Adamowski is now strutting through thanks to Commissioner Pryor and Governor Malloy.

As a state employee, Adamowski will be able to sidestep the State Employee Retirement System rules – for example – having to work ten years before vesting his pension.  Instead he will be able to immediately add years to his Teachers Retirement System  penson – EVEN THOUGH HE IS NOT CERTIFIED TO TEACH OR BE AN ADMINISTRATOR IN CONNECTICUT.

Not only will he get to add his time at the State Department of Education to his Teacher Retirement Pension, but for every two years he works at the state he will be able to buy yet another year of retirement credits for the time he worked as a school administrator in another state.

As of now, Adamowski has ten years into the State Teacher Retirement System, time that he collected for his work many years ago when was employed by various Connecticut school districts.  Since he reached his ten-year threshold, he also qualifies under the program to purchase four years of his out-of-state service.  So at this point in time he only has 14 years toward a Connecticut Teachers Retirement Pension…enough for a pension, but a relatively small one..

However, with his new status as a highly paid state employee, he not only will get the benefit of additional years and the higher salary but will be able to purchase even more out-of-state time.  Two years as a state employee and he can purchase one more year of out-of-state service.  Four years at the Department of Education could actually mean he collects a total of more six more years of pension credits.

Factor in the $163,000 a year (and more) that he will be making at the Department of Education and this shift from being an employee of SERC to being a the State of Connecticut will increase his annual pension by thousands, even tens of thousands, of dollars.

As Governor Malloy sits on top of one of the largest unfunded state and teacher pension systems in the country, an unfunded liability that will cost Connecticut taxpayers more than $20 billion to resolve over the next two decades, leave it to back room politics of the Malloy administration to wheel and deal a way for Steven Adamowski to boost his pension at taxpayer expense.

But as the corporate education reformers like to say….”it is all for the children.”

You can read more background on the Pryor/Adamowski move here:

http://jonathanpelto.com/2013/09/05/hell-going-pryor-state-board-education-make-adamowski-state-employee/

http://articles.courant.com/2013-09-04/news/hc-state-board-education-0905-20130904_1_windham-special-master-education-commissioner-stefan-pryor

http://articles.courant.com/2013-09-06/news/hc-adamowski-pay-cut-0907-20130906_1_special-master-education-commissioner-stefan-pryor-steven-adamowski

http://theday.com/article/20130904/NWS01/130909905/1018

Early Retirement Agreement Update:

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State employees who are eligible may elect to retire in lieu of layoff under the terms of the new Stipulated Agreement between the Malloy Administration and SEBAC:

State employee employed as of December 1, 2012 and you are a member of the Connecticut State Employees Retirement System (SERS).  Offer applies to non-represented employees, including managers, as well as to members of all bargaining units.  

Prior to August 31, 2011 you were under the age of 55 AND had twenty-five or more years of service. 

SERS members must irrevocably elect to retire in lieu of layoff AND sign a stipulated agreement by May 1, 2013.

Retirement date: Eligible Tier I members must retire no later than July 1, 2013.  Tier 2 members must retire no later than September 1, 2014.

Benefit to Tier I members (must retire no later than July 1, 2013): The eligible member may elect between the following two options:

a. Have their benefit reduced by 4.5% for each year they are under 55 as of their date of retirement (no later than July 1, 2013) and be entitled to the COLA provisions of individuals who retired after October 1, 2011; OR

b. Have their benefit reduced by 6.0% for each year they are under 55 as of their date of retirement (no later than July 1, 2013) and be entitled to the COLA provisions of individuals who retired before October 1, 2011.

Benefit to Tier II members who elect to retire no later than July 1, 2013:  The eligible member may elect between the following two options:

Have their benefit reduced by 4.5% for each year they are under 60 as of their date of retirement (no later than July 1, 2013) and be entitled to the COLA provisions of individuals who retired after October 1, 2011; OR

Have their benefit reduced by 6.0% for each year they are under 60 as of their date of retirement (no later than July 1, 2013) and be entitled to the COLA provisions of individuals who retired before October 1, 2011.

Benefit to Tier II members who elect to retire after July 1, 2013 and no later than September 1, 2014: The benefit will be reduced like any other early retirement benefit (6% for each year before eligibility for normal retirement), however, individuals who elect to retire in lieu of layoff will be entitled to the COLA provisions in effect for individuals who retired prior to October 1, 2011.

State/SEBAC retirement settlement finally reached…

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Last September I inaccurately reported – ALERT/UPDATE: Arbitrator rules against Malloy Administration on significant retirement issue.   Last November I wrote a post entitled, Is another Connecticut State Employee Early Retirement Incentive coming?.

The rumors and hypothesis all revolved around two factors.  What was deemed to be a potentially illegal move by the Malloy Administration to grant certain hand-selected individuals special early retirement benefits almost two years ago and the broader recognition that the Malloy Administration desperately wants to reduce the state workforce — thereby moving costs from the General Fund over to the Pension Fund.

Well, while details are still sketchy, an agreement was finally reached between late last week between the Malloy Administration and SEBAC on the early retirement grievance and details will be sent out to impacted state employees within the next 24 hours.

Those who qualify under the new agreement, the parameters of who qualifies I do not know, will be given the option to “retire early” as long as they sign the necessary paperwork by May 1 and retire by July 1.

Those receiving the emails are asked to provide additional details or additional details will be posted as they become available.

ALERT/UPDATE: Arbitrator rules against Malloy Administration on significant retirement issue

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Yesterday, I posted this blog about rumors spreading that the Malloy Administration has lost a massive arbitration ruling concerning the retirement incentive that was offered to some but not all state employees.  The details remain confusing.  An arbitration award or awards have certainly been made that require the state and SEBAC to negotiate and action to be taken by the State Retirement Commission.  I will update as details become available.   What is clear is that according to State employees knowledgeable  about the situation, there are employees who should have been given the opportunity to utilize retirement incentives, but were not given that opportunity and the problem must now be rectified.

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Although it hasn’t been officially confirmed, word is spreading that the Malloy Administration has lost a massive arbitration ruling today.

Last summer, the Connecticut State Employees Bargaining Agent Coalition (SEBAC) filed a grievance against the Malloy Administration with the Connecticut Board of Labor Relations.

The complaint revolved around the Malloy Administration’s unilateral decision to
offer to certain employees the ability to retire with 25 years of service regardless of age.”  According to labor unions, Malloy’s representatives made this offer without fulfilling their bargaining responsibility with SEBAC and without making it available to all state employees.

At the time, SEBAC challenged Malloy’s action because it was;

“(1) Unfair to employees who learned about them, because it forced those employees to make a critical life-changing decision without full information or the opportunity to change their minds; and

(2) Unfair to the vast majority of employees, who management never informed about the offer at all and thus were never given any opportunity to decide.”

Union leaders demanded that the offer be made available to all eligible state employees and that employees be given an adequate time frame to make a decision.

The Malloy Administration refused and filed a State Prohibitive Practice complaint.

Apparently, earlier today, an arbitrator ruled against the Malloy Administration.

If true, the state may now be forced to negotiate a process to give all employees the ability to retire, regardless of age, as long as they have at least 25 years of service.

There are also rumors that the Malloy Administration lost on a second major issue related to the fact that it gave managers longevity bonuses when unionized employees went without those payments.

Stay tuned – more to come.

The Great Connecticut State Employee Pension Fix of 2012 —- A Bust!

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Attention Connecticut Taxpayers…

Attention Retired and Active State Employees…

The Great Pension Fix of 2012 isn’t the guaranteed fix that everyone thought it was…

One of the most important fiscal issues facing Connecticut and its future is the State’s incredible unfunded pension liability.

Adequate funding will directly impact more than 100,000 Connecticut families, as retired and active state employees, look to the State Employee Retirement Fund (aka the State Employee Pension Fund) to fulfill its legal obligation.

However, despite knowing that the financial obligations were building higher and higher, Connecticut’s public officials failed to invest the necessary funds to pay for the future pensions that it was committing too.

In no other area of Connecticut state government has fiscal policy been so poorly implemented.

Democratic, Republican and Independent governors turned a blind eye to the impending crisis.  Legislators were only too happy to go along.

The failure to properly fund the State Employee Pension Fund would mean that future generations would not only be burdened, but crippled, by the massive payments that would be needed to make up for decades of underfunding.

While experts recommend that a “healthy” pension fund should be at least 80% funded, Connecticut’s State Employee Pension Fund ratio stands at 48%, the worst ratio in the nation.

But On January 23, 2012, Governor Dannel Malloy stepped forward with an initiative that would finally address Connecticut’s unfunded pension liability.  See Malloy’s Press Release http://www.governor.ct.gov/malloy/cwp/view.asp?A=4010&Q=494876

By increasing pension payments by $3 billion between now and 2025, Connecticut State Government would put the fund on track and save future taxpayers billions and billions of dollars. While the cost of Malloy’s initiative was significant, the benefits were even greater.

According to the press release, “The restructuring will save the state nearly $6 billion over the next 20 years, and put the pension system on the road to long-term sustainability, something that is currently not the case.”

The press release explained that, “starting in FY2014, [Connecticut would] appropriate additional funds, over and above the Annually Required Contribution, in order to achieve 80% funding in FY 2025, and reaching 100% in 2032…”

To allow the extra payments to be made, Malloy’s plan also included amending Connecticut’s state spending cap to exclude pension contributions in excess of the Annually Required Contribution.

The Connecticut Legislature followed Malloy’s directive and this year’s budget includes the first year of Malloy’s plan.

But then just this last week, virtually unnoticed, came the news that Governor Malloy’s pension funding initiative is nothing but a blueprint.

Despite what observers assumed last February, the Malloy initiative didn’t lock the state into properly funding its unfunded liability.  While it did remove a negative provision that was adopted during John Rowland’s administration, we now learn that the promised commitment that the state would finally make the appropriate payments over the coming 15 years was nothing more than a suggestion.

In fact, this governor, or any governor, could simply throw out the plan and go back to using the money for something else.

The truth was revealed last week when Malloy and the State Retirement Commission agreed to reduce the assumed annual return on pension fund investments from 8.25 to 8 percent.

They took this move because one of the bond rating agencies, Moody’s Investors Service, a firm that had already lowered Connecticut’s bond rating, recommended that states lower their assumed annual rate of return to reflect the new economic reality.  Their recommendation was that states use a number more like the 5.5 percent average return that funds have been getting the last couple of years.

According to the Governor’s budget chief, the cost of moving from 8.25 to 5.5 percent would have been prohibitively expensive, so the state shifted from 8.25 percent to 8 percent.

But the real news was not the drop in the expected rate of return, but, for the first time, it was revealed that while Malloy did increase the state’s contribution to the State Employee Pension Fund by $277 million this year, only $100 million was that amount was “contractually guaranteed.”

The issue certainly appears to be complex, but it boils down to one extraordinarily key issue.

The assumption has been that the Malloy Administration locked the new funding initiative into the SEBAC agreement that he signed with the state employee unions.  In that way, this governor and future governors would be required to make the necessary payments into the State Employee Pension Fund.  Malloy has said repeatedly that his plan saved future Connecticut taxpayers $6 billion dollars.  The implication being that the payments were guaranteed.

However, the Malloy Administration’s answers to reporters this week indicate that they did not lock the payment plan into place, after all.

As noted above, by failing to make it part of the SEBAC agreement, this governor or any governor can simply stop making the extra payments, in which case, Connecticut’s State Employee Pension Fund would remain on a collision course with the future.

At no time did the Governor or the Legislature suggest that this plan was optional.  In fact, the whole reason for exempting the payments from the State’s spending cap was to allow the increased funding plan to move forward year after year.

There could be as many as four more governors before Malloy’s pension funding plan ensures that the State Employee Pension Fund reaches the 80 percent ratio.

Despite what was said, we now have a situation in which any one of those governors could destroy the whole effort.

Looking at it now, the situation is eerily similar to what happened with the State’s promised conversion to Generally Accepted Account Principles (GAAP).  As a candidate, Dan Malloy promised that he would shift the state to GAAP accounting immediately upon becoming governor.  Then, when he and his administration realized the full cost of that effort, he proposed a state budget that made a $75 million down payment the first year and another $50 million down payment the second year, followed by a 15 year $150 million dollar a year payment schedule that would complete the transition to GAAP.

At the time, I wrote that here at Wait, What?, “While the implementation was now scheduled to take place over 17 years and not immediately as he had promised, it was still a step forward.”

But of course, as we now know, with not enough revenues to cover expenditures, Malloy quietly decided to forgo even making those first two small down payments.

Now, two years into his term, the State has completely failed to implement the shift to GAAP accounting.

Incredibly, we could be looking at the very same situation when it comes to Malloy’s promised commitment to properly funding the State Employee Pension Fund.

For more background on this issue,

CTMirror:  http://ctmirror.com/story/17515/malloy-seeks-modest-change-expected-pension-fund-earningshttp://ctmirror.com/story/15150/malloy-unveils-plan-reverse-two-decades-damage-employees-pension-fund

CTNewsjunkie:  http://www.ctnewsjunkie.com/ctnj.php/archives/entry/state_pension_funds_lose_1b/http://www.ctnewsjunkie.com/ctnj.php/archives/entry/malloy_seeks_changes_to_state_employee_pension_fund/

The Adamowski Pension: A Story of one Education Reformers Sense of “Entitlement”

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Forty-five thousand teachers and nine thousand administrators have managed to follow Connecticut law and acquire Department of Education certification in order to participate in the Teachers Retirement System, but Steven Adamowski and the Malloy Administration continue to believe that one of Malloy’s “education reform experts” and  “Special Master” for the Windham School System, deserves an exemption from that “burden.”

Readers will recall that earlier this year, despite a $9 billion short-fall in Connecticut’s Teacher Pension Fund, Governor Malloy slipped language into his “Education Reform” bill to retroactively enlarge Adamowski’s teacher retirement pension by giving him credit for the years he served as the Superintendent of Schools in Hartford, despite the fact that he was not certified to be the superintendent.

This “gift” could amount to an additional $27,000, per year, when Adamowski retires.

In a display of courage, the Connecticut Legislature stripped that language out of the proposal bill before passing Malloy’s education reform bill.

But what was left unaddressed was the Malloy Administration’s on-going effort to get Adamowski credit for his time as “Special Master,” even though he still hasn’t gotten the certification he would need to get back into the retirement system.

Here is the latest…

Buried deep within the Connecticut State Statutes, Section 183b, subsection (E) of subsection (26) is language that was added in 2007.  The language expanded the definition of a “Teacher” (for the purpose of participating in the Teacher Retirement System) to include “(E) a member of the staff of the State Education Resource Center [SERC]…employed in a professional capacity while possessing a certificate or permit issued by the State Board of Education.”

The language put SERC’s employees into the Teacher Retirement System (as long as they possessed a certificate or permit issues by the State Board of Education). SERC is the agency that Commissioner Pryor has been using to get no-bid contracts to out-of-state education reform companies that have been helping develop and implement his “reform” agenda.

Well, back when the Windham take-over took place, rather than having to deal with the state laws pertaining to the hiring of consultants, the State Department of Education simply directed the State Education Resource Center (SERC) to hire Adamowski, via a no-bid contract, to serve as the state’s Special Master.

The contract, including a salary and benefits package in excess of a quarter of a million dollars, was signed by Adamowski, the Executive Director of SERC and the State Commissioner of Education.

The contract included language that reads “Dr. Adamowski will be allowed access to the same benefits as stated in the SERC Employee Handbook that other eligible SERC employees are offered, except as otherwise modified herein.  Dr. Adamowski will receive 25 days of accrued vacation time per year.  Dr. Adamowski will receive 15 days of sick time per fiscal year.  Dr. Adamowski will also be eligible for 3 days of paid personal time per fiscal year.  Also, Dr. Adamowski will be eligible to continue membership in the Connecticut Teachers’ Retirement System…”

That language raises two key questions.  Is Adamowski actually an “employee” of SERC (or is he a consultant), and if he is an employee, has he now acquired the proper certification or permit that is required under that language in 183b (26) (E) so that he can tap into the teacher’s retirement system.

In April, I submitted a request to SERC asking whether Adamowski was an employee or a consultant.  Despite repeated requests, SERC has refused to provide that information claiming it was part of Adamowski’s personnel file, which is exempt information under the Freedom of Information Act.

(As an aside, since SERC is a quasi-public entity, the public has a right to know whether an individual is or is not an employee, but for that, I’ll have to appeal to the Freedom of Information Commission).

But the more important questions are why did the Malloy Administration allow this language into Adamowski’s contract knowing that Adamowski doesn’t have the required certification and why are payments now being made into the pension fund, on Adamowski’s behalf, so that he can add these two years to his future state teachers retirement pension?

The State Board of Education is meeting today.  Among the agenda items is an update from Adamowski about his progress in Windham.

If Commissioner Pryor or Special Master Adamowski see this blog, perhaps they could explain to the State Board and the public what is going on with Adamowski’s pension and why they think one well-connected “education reformer” deserves to collect even more public funds despite the fact that he refuses to play by the same set of rules that everyone else has to play by?

Malloy Signals Major Shift in his Message

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Maybe it was the fresh mountain air of Switzerland or maybe it was the realization their approach wasn’t working, but over the last 48 hours we’ve seen the Malloy Administration make a  significant shift in the way they are talking about the state’s problems and Malloy’s record to date.

For months, Governor Dannel Malloy, Secretary of the Office of Policy and Management Ben Barnes and Chief Advisor Roy Occhiogrosso have been diligently sticking to their message that Connecticut’s fiscal health is back on track and all will be well.

In recent weeks, even when Comptroller Kevin Lembo raised specific concerns about the health of the state budget, even when Moody’s Investment Service downgraded Connecticut’s Bond Rating, even when the Legislature’s non-partisan Office of Fiscal Analysis determined that Connecticut’s state budget actually had a deficit and not a surplus and even when OFA determined that Malloy’s purported pension savings were completely off base, the Malloy Administration claimed that they were right and everyone else was wrong.

A couple of months ago, Ben Barnes, Malloy’s Budget Chief  reported that “the enacted budget returns the state to structural balance for the foreseeable future, with operating surpluses projected in each year of the biennium. We are projecting a General Fund balance of $79.1 million this month, an improvement of $3.5 million from last month’s estimate”  ”  Ben Barnes 11-15-2011

In December Barnes said things were even better claiming “we are projecting a General Fund balance of $83.7 million this month, an improvement of $4.6 million from last month’s estimate, and $8.7 million above the amount reserved per Sec.46 of Public Act 11‐48 to address the GAAP deficit.”  Ben Barnes 12-20-2011

Just a few weeks later, when Moody’s downgraded the state’s budget rating, Barnes’ retort was “Moody’s is wrong in its analysis of the state’s finances, and wrong to change Connecticut’s credit rating…Connecticut has done all the right things to shore up our finances, and Moody’s has responded with a downgrade intended to satisfy their internal corporate need to deflect attention from their historic lack of credibility.” Ben Barnes 1/20/2012

Malloy’s chief message advisor, Roy Occhiogrosso went so far as to claim “this Governor has played no gimmicks whatsoever with the state’s finances. None. Thanks to Gov. Malloy the state is keeping its books honestly, for the first time ever, and meeting its obligations completely” Roy Occhiogrosso 1/20/2012

The Malloy Administration was clear.  They were right and Moody’s was wrong.  In fact, Moody made this wrong decision to make up for their role in causing the Great Recession.

Days later, as word spread that state revenues were down and the promised state surplus had suddenly become a state deficit, the Governor’s Communication Director announced that OFA was wrong and that “Secretary Barnes is confident in OPM’s numbers,”  Andrew Doba 1/25/012

A day later, Governor Malloy added “We’re confident based on current numbers that we’re dealing with that we’ll end in the black…We think that we’re going to recognize the savings we have built in the budget” Dan Malloy 1/26/2012

At one point OPM even went so far as to say that the surplus was real and everyone else was wrong.

Their claim?  The state’s $20 billion dollar budget actually had a surplus of $1 million.

And finally, last week when OFA announced that the Malloy/SEBAC pension changes would fall billions short of the number the administration had promised, Barnes shot back that OFA’s analysts were “logically incorrect” adding “While we respect the capabilities of the legislature’s Office of Fiscal Analysis, they are not actuaries; their analysis of the pension fund is flawed,” Ben Barnes 1/27/2012

Their message was clear, concise and consistent.  We’re right and anyone who questions us is not only wrong, but they are “logically incorrect,” have no credibility or are simply idiots.

Faced with reality, their message never appeared particularly useful or sophisticated but it certainly seemed to make them feel good.  It was a reminder of the scene from the 1986 movie Matilda where Harry Wormwood (played by Danny DeVito) tells his kid “I’m smart, you’re dumb; I’m big, you’re little; I’m right, you’re wrong, and there’s nothing you can do about it.”

And so it went until a few days ago when the Malloy Administration made a profound change to their message.

We may never know whether it was the impact of the clean Swiss mountain air or a calculated political decision by spin-master Occhiogrosso but the administration suddenly jettisoned their message that “everything is fine” to one in which the claim is that Dannel Malloy is doing the best he can with the fiscal situation he inherited – a state government that was bankrupted by years of fiscally irresponsible actions taken by Connecticut’s previous Republican governors.

Gone is the message that the state’s fiscal health is good and getting better.  In its place is the message that the Governor deserves more credit for taking on the herculean task of undoing the damage caused by past Republicans.

On Monday, in his first press availability since he returned from Davos, Switzerland, Governor Malloy said “We had Republican governors in this state for 16 years in a row…They ran up our debt. They brought us really to a point of downgrading our bonds. They entered into transactions, which required us not to fund our pensions properly. I came into a situation 13 months ago facing the largest per capita deficit in the nation, with one of the worst funded state pension plans in the nation,”   Governor Malloy 1/312012

Malloy added “Now I would argue we deserve more credit for the steps that we have taken…Moody’s [reason for down-grading Connecticut’s bond rating] “pre-dated my administration.” 1/31/2012

The Malloy Administration’s decision to switch messages makes a lot of sense.

Instead of taking a hit every time bad economic or budget news is announced they can now go with a much more believable mantra based on the notion that “hey, we’re doing the best we can with a bad situation”.

Blaming the problems on previous Republican governors who are no longer around is a lot more effective than saying the sun is out when it’s actually raining.

The only problem with the “blame the Republicans” strategy is that virtually every single “wrong move” that those previous Republican governors made was either passed into law by a Democratic Legislature or agreed to by the state employee’s negotiators.

The Governor’s upcoming State of the State address on February 8, 2012 will reveal just how far the Malloy Administration’s message has shifted but it is pretty clear that rather than hear that everything is great we’ll be hearing, over and over again, that Governor Malloy inherited this mess and is working hard to set things right.

It’s actually the message they should have been using all the way along.

The Truth Hurts…. Rating Agency Down Grades Connecticut to aa3… Now what?

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On Friday, the Wall Street bond rating company, Moody’s Investment Services, lowered their rating of the bonds issued by the State of Connecticut from aa2 to aa3.  This is the second drop in the past year and Connecticut’s bonds are now rated with a “negative outlook”.

The Malloy Administration’s response was to try to turn it into a partisan issue.

However, it is not a partisan issue.  People may try to take partisan advantage of this development, but the underlying truth is the same truth that Connecticut faced the day before Moody’s lowered its rating.  This state is in deep financial trouble.  How to deal with it certainly has partisan overtones but whether we face the truth or continue to run from it has nothing to do with political partisanship.

Moody’s explanation for their action was that;

“The rating downgrade is based on Connecticut’s high combined fixed costs for debt service and post employment benefits relative to the state’s budget; pension funded ratios that are among the lowest in the country and likely to remain well below average; and depleted reserves with slim prospects for near-term replenishment.“

Ben Barnes, Malloy’s budget chief and Secretary of the Office of Policy and Management shot back saying;

“Today, we have a structurally balance budget, have converted to GAAP, have fully funded our current pension obligations and seen their funding ratio rise, have negotiated significant pension benefit concessions from organized labor, have negotiated significant employee contributions to retiree health benefits…”

And the Governor’s chief advisor, Roy Occhiogrosso said that;

“This governor has played no gimmicks whatsoever with the state’s finances. None…Thanks to Governor Malloy, the state is keeping its books honestly, for the first time ever, and meeting its obligations completely”

This is what happens when politics is deemed more important than policy and government officials believe spin is more valuable than facing facts.

The Administration’s response is what one would expect in the midst of a political campaign but from the group that is trying to lead Connecticut out of its fiscal wastelands.

Governor Malloy and his Administration have taken impressive steps to begin to correct Connecticut’s finances.  But as hard as it is for them to hear it, Moody’s is right and Barnes and Occhiogrosso are wrong.

(1)   Connecticut’s State Employee Pension Fund is underfunded by $11 billion dollars.  Last year the Pension Fund had enough money to cover 44 percent of its future obligations.  While it is true that the Pension Fund now has enough money to meet 48 percent of its future obligations, despite what Barnes and Occhiogrosso are saying, the improvement WAS NOT primarily due to the Malloy/SEBAC agreement but the Fund balance went up because the return on investment was incredibly high for one year.  Pension Funds are supposed to cover 80 percent of their future obligations and even after the state employee agreement that state still owes its Pension Fund about $11 billion.

(2)   While the Connecticut’s Teacher Pension Fund has 61 percent of the money it needs to meet its obligations, that is because four years ago the state borrowed $2 billion to put into the Teacher Pension Fund meaning Connecticut must now re-pay that loan with interest and it still owes $9 billion.

(3)    Although retired state employees have earned the right to receive health benefits, the state has put nothing aside to meet those costs.  Instead, the state pays what is needed each year.  The projection is that the state will need to pay more than $26 billion over the next three decades.  The Malloy/SEBAC agreement requires that all state employees put 3 percent of their pay into a new fund to cover retire healthcare but the contribution program does not begin until does not retired health care, and state government July 1, 2017 and with fewer state employees the amount contributed will be relatively small compared to the amount that is needed.  Connecticut owes another $3 billion to pay for health benefits for retired teachers.

(4)   Connecticut owes about $20 billion for the money it has borrowed to build schools, state buildings, preserve open space, fix roads, bridges, dams, rebuild the state’s universities and pay for other generally important capital improvements.  If measured by the amount of debt Connecticut has per capita (per person), it ranks as the 4th most indebted state in the country. If measured by income, Connecticut ranks as the 6th most indebted state in the nation.

(5)    As to OPM Secretary Barnes’ claim that the Connecticut state budget is balanced is the reality that even after $1.5 billion in new taxes and significant budget cuts, as a result of lower than expected income tax revenue, this year’s budget has gone from a surplus to a deficit and next year’s is headed toward down.  And that doesn’t even count any decline in federal dollars or – even more importantly – the fact that this year’s budget is “balanced” with a number of impossible to achieve “hold-backs”

(6)   As to the notion that Connecticut has converted to GAAP accounting.  While it is true that Governor Malloy promised to immediately convert the state to GAAP, this year the state was scheduled to put in $75 million toward GAAP conversion and another $50 million next year. (The initial money was to be paid out of any budget surplus Connecticut has, but the budget is now in deficit).  Then, even if the state did make the $125 million payment, the actual transfer to GAAP would begin in 2014 and go for 15 years until the $1.5 billion GAAP deficit was paid for.

(7)   And in response to Occhiogrosso’s claim that “This governor has played no gimmicks whatsoever with the state’s finances. None…Thanks to Governor Malloy, the state is keeping its books honestly, for the first time ever…” is the truth that this year’s budget was balanced by moving more than $440 million surplus revenue from last year into this year’s budget and counting on another $400 million or more in unachievable “hold-backs” or budget cuts.  The fact is that this budget, like previous ones, contains a number of “gimmicks”.

More about these issues can be found on the various Connecticut news websites including Keith Phaneuf’s article in CTMirror: http://www.ctmirror.org/story/15129/wall-street-credit-agency-downgrades-connecticuts-bond-rating and Christine Stuart’s  article in CTNewsjunkie http://www.ctnewsjunkie.com/ctnj.php/archives/entry/moodys_downgrades_cts_bonds_from_aa2_to_aa3/

Finally, the proof that this administration seems to have no interest in getting out of campaign mode and into governance mode can be found in the actual language of OPM Secretary Barnes’ statement and the quotes from Malloy’s chief advisory.

Barnes’ statement includes the following language; “Moody’s has responded with a downgrade intended to satisfy their internal corporate need to deflect attention from their historic lack of credibility.”   Barnes goes on to conclude “this reflects their continued reaction to their central involvement in the financial scandals that led to the deepest recession since the Great Depression…”

Meanwhile Occhiogrosso blasted the Republicans claiming that they were “defending an organization that gave subprime mortgages AAA ratings, right before those mortgages caused the financial meltdown of 2008…”

While it may be true that Moody’s Investment Services and the other Wall Street rating agencies, along with the major Wall Street Banks, created the Great Recession – not only are Barnes and Occhiogrosso responding with political rhetoric –  I’d wager that the same person was the source of both statements.  In the political world it is called “staying on message”.

Lies and Damned Lies….oh and Truth

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I have seen some amazing political statements in my time.

I’ve seen lies and even damned lies….

But I have to say I’ve never seen something like what Ben Barnes put out today.

Our state is in deep trouble.

For a year now I’ve written about these problems and have watched the reaction from people who know the truth.

Scorn….
Scorn and denial….

Today, one of the rating agencies has done nothing other than speak the truth.

And the official response is scorn and a statement that is so absurd that it makes one wonder who could have written it.

Do they really not understand what we face….or do they think that we are so stupid that we will not understand and be persuaded by lies and damn lies.

Read the statement – and then read it again.
Nothing could make the problem clearer.

Denial is the greatest threat we face.

And now we see just how far up the chain of command it goes.

OPM SECRETARY BENJAMIN BARNES STATEMENT ON MOODY’S RATING CHANGE

(HARTFORD, CT) – Benjamin Barnes, Governor Dannel P. Malloy’s Secretary of the Office of Policy and Management, today released the following statement about the Moody’s change to the state’s bond rating:

Moody’s is wrong in its analysis of the state’s finances, and wrong to change Connecticut’s credit rating. Connecticut has done all the right things to shore up our finances, and Moody’s has responded with a downgrade intended to satisfy their internal corporate need to deflect attention from their historic lack of credibility.

Connecticut has always paid its debt, and remains an attractive issuer of public debt. Investors appreciate Connecticut’s strong income levels, conservative debt management practices, and fiscally conservative leadership.

Moody’s lowered the rating for Connecticut below where it has been since April 2010 even though Connecticut’s fiscal health has significantly improved during that period. Recall that in 2010 Connecticut faced looming multi-billion deficits into the future, had pension funding ratios in the low 40s, had spent the entire rainy day fund, and was in the middle of a series of budgetary gimmicks which Governor Malloy has spent his first year in office undoing.

Today, we have a structurally balance budget, have converted to GAAP, have fully funded our current pension obligations and seen their funding ratio rise, have negotiated significant pension benefit concessions from organized labor, have negotiated significant employee contributions to retiree health benefits, and have begun to add jobs to the state economy.

Moody’s Investor Service decision today to lower their rating of Connecticut’s General Obligation debt from Aa2 (negative) to Aa3 (stable) is unfortunate. It reflects their continued reaction to their central involvement in the financial scandals that led to the deepest recession since the Great Depression. Coming on the eve of our budget release, without an imminent bond sale, suggests that the move is motivated by factors other than Connecticut’s creditworthiness.

Moody’s, which receives approximately $170,000 per year in fees from the State for their bond rating services, is one of three agencies that rate Connecticut debt. The others, Standard & Poor’s and Fitch, continue to rate Connecticut debt as AA (equivalent to Aa2 from Moody’s.)

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