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.

Malloy Takes Bold Step – Proposes Paying for State Pension Fund the Right Way.

When it comes to putting Connecticut’s fiscal house in order, mark this one as the single most important proposal Governor Dannel Malloy has made since taking office.

Imagine having a 30-year mortgage that had relatively low payments for the first twenty years and then massive payments for the last ten.  Payments that were so large that you knew, beyond any reasonable doubt, there was any way you could possibly make the payments so you would lose the house, and you were essentially living on borrowed time.

That is exactly what Connecticut has been facing.  That’s the way Connecticut has been paying its obligation to the State Employee Pension Fund.

Yesterday, Governor Malloy announced his plan to fulfill the state’s funding obligation the right way.

His plan would look much more like a mortgage that paid significantly more of the costs in the earlier years.  In this way the State Employee Pension Fund and taxpayers would benefit from the compounding effect, which in turn, would save taxpayer’s literally billions over the long run.

According to financial experts, pension funds should be financed at about 80 percent of their total liability.  In 1991, Connecticut’s State Employee Pension Fund was funded at 63 percent of the total liability.  Nineteen years later, the state’s failure to make payments and losses in the stock market meant the pension fund were funded at only 44 percent of its total liability, one of the lowest ratios of any state in the nation.

As the result of an impressive return on investments and changes from the Malloy/SEBAC agreement, a new actuarial report found that the State Employee Pension Fund is now at 48 percent funded – still well below what is considered a healthy funding ratio.

Governor Malloy’s new plan is to dramatically increase payments to the State Employee Pension Fund starting with an “extra” $123 million payment next year and then continue, each year, to increase the amount of money going into the Fund.

By paying now, instead of having a State Employee Fund that was bankrupting the state by 2030, the Fund would be well on the way to self-sufficiency guaranteeing that retirees get the pensions they are legally entitled to and allowing the state to redirect future funds to vital services.

The two primary challenges standing in the way of Malloy’s new pension fund plan is where to come up with the extra money and the significant challenge posed by the State Spending Cap.

While this year’s budget is $1 million under the spending cap and next year’s is scheduled to be $195 million under the spending cap, FY 14 is on track to be $653 million over the cap and the year after that, FY 15, the budget is projected to be $1.2 billion over the cap.

Governor Malloy’s new plan would be to change the law and make additional pension fund payments exempt from the spending cap limitation.

The Governor was less clear about where the extra funds would come from.

His plan, which would require the approval of the General Assembly, the state employee unions and the State’s Retirement Commission, drew praise Monday from labor leaders.

Since it would be a win – win – win for the state, the employees and the long-term interests of the taxpayers, approval would be likely.

For more information check CTNewjunkie: http://www.ctnewsjunkie.com/ctnj.php/archives/entry/malloy_seeks_changes_to_state_employee_pension_fund/ and CTMirror http://ctmirror.org/story/15150/malloy-unveils-plan-reverse-two-decades-damage-employees-pension-fund

Note:  Meanwhile, with the state going from a projected surplus to a likely deficit in the last few days, Governor Malloy today announced nearly $79 million in new, emergency spending cuts.  With limited areas in which to cut, one of the prime targets was, once again, Connecticut’s public colleges and universities which Malloy had already targeted for the deepest cuts in Connecticut history.  Earlier this week, the Connecticut State Universities and Community Colleges announced tuition and fee increases to address what was already impossible to achieve spending cuts to the institutions.

In its annual report released Monday by the Center for the Study of Education Policy at Illinois State University, Connecticut ranks seventh in cutting higher education funding from last year to this year. While the average cut in other states was 4.1 percent, Connecticut’s public colleges and universities took a 12.2 percent funding cut this fiscal year.

More on this breaking news later

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

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

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 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.


(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.)

Phew: Connecticut Needs to Pay Only $926 million to the State Pension Fund this Year.

Stock Market Provides Key to Meeting State’s Pension Goal

Background:  In February 2011, Governor Malloy announced that in addition to tax increases and budget cuts he would balance the state’s upcoming bi-annual budget with $2 billion in savings from state employees.

As one of the loudest critics of the governor’s approach, I’ve been writing about this topic on a regular basis, going so far as to state that there was no way those savings could be achieved.

When the Malloy/SEBAC agreement was reached, the parties announced that it would save the state $1.6 billion over the next two years rather than the promised $2 billion. [The difference was made up by sliding a larger than expected surplus in FY11 to FY12].

The Malloy/SEBAC savings were scheduled to come from a variety of different areas including the freeze in state employee wages, the elimination of longevity payments, changes to the state employee healthcare and pension system and a number of targeted budget reductions.  The non-partisan Office of Fiscal Analysis could only confirm the value of about one-third of the savings.

But the Malloy Administration remained adamant that it would get all the savings it projected.

The changes to the state employee pension system were calculated to save the state $237 million this year.

Late last week, Keith Phaneuf of the CTMirror, explained the latest development with the pension fund in his “must read” article – see: http://ctmirror.org/story/15039/pension-report .

In order to balance the state budget in 2009-2010, Governor Rell negotiated an agreement with the state employee unions that allowed the state to reduce its payments to the Connecticut State Employee Pension Fund.

Rell and the Democratic Legislature decided to forgo about $314 million in pension fund contributions.

The impact from the reduced payments and drop in the stock market left the State Employee Pension fund with assets of about $9 billion and long-term obligations of $21 billion (or a funded ratio of 44.4 percent – one of the lowest ratios in the country – the appropriate funding ratio is in the range of 80 percent).

Last week, a new actuarial report on the Connecticut’s State Employee Pension Fund has determined that the fund now has assets of $10 billion dollars with long-term obligations of $21 billion (or a funded ratio of 47.9 percent).

The immediate effect of this development is that this year Connecticut will have to make a pension contribution of $926 million instead of the $939 million that was part of this year’s approved budget. (A savings of $13 million)

Thanks primarily to the bizarre ups and downs of the US stock market, the State Employee Pension Fund got over 21 percent on its investment over the last year compared to the 8.25% that was expected.

Although the expected pension savings from the Malloy/SEBAC” agreement did not materialize, this piece of the budget balanced thanks to the incredible return the Fund received.

The new actuarial report is vague but it appears that about $67.5 million of the $237 million expected savings (about 28 percent) was the result of the pension agreement while well over 70 percent of the goal was achieved due to the return on investments.

In what has now become a classic response, Ben Barnes, the Secretary of the Office of Policy and Management, told the CTMirror “thank heaven it was with us [the stock market growth], but market timing wasn’t really a factor for us.”

Meaning what?

The state projected that it would save $237 million in pension costs as a result of the Malloy/SEBAC agreement.

It failed to do that, but thanks to the stock market and investments, the state got that money that it needed; which is good news.

Sticking to his political “talking points”, and despite the recent evidence, Secretary Barnes said that he remains confident that the Malloy/SEBAC agreement will, in fact, save the state $700 million this year and $900 million next year.

And for the record, I remain convinced that it will not.

FACT CHECK: The Truth about State Employee Pensions:

(Cross-posted from Pelto’s Point at the New Haven Advocate)

“Unsustainable” – Has Become a Political Term of Art

Except for the phase “shared sacrifice”, the term “unsustainable” has become the most common piece of political speech in Connecticut.

Last check found over 100 news articles in which Governor Malloy has said that Connecticut’s state employee benefit and pension system is unsustainable.

Newspaper editorial writers have picked up the chant by also declaring that Connecticut’s public employee benefit and pension system is unsustainable.

The problem is that the politicians and editorial writers either don’t understand the whole situation or are purposely misleading the public on this vital issue.

It is fair to say that healthcare costs are “unsustainable” – for the state of Connecticut, for the private sector and for individuals.  Getting healthcare costs under control is one of the most important issues we face as a society.

While healthcare costs are unsustainable, it is factually incorrect and intellectually dishonest to say that Connecticut’s pension system is “unsustainable”.

That is not to say that Connecticut doesn’t have a pension funding problem.

Over the past 35 years state government legally agreed and contracted with its employees to provide certain pension benefits.

However, the state failed to set aside the funds to pay for those benefits.

The problem is NOT the un-sustainability of the pension system but that Connecticut’s pension system is $9 billion dollars short of what it needs to be 100% funded.

Connecticut could do away with pensions completely for all future state employees and the state’s pension system would still require those funds.

This situation came about because Connecticut’s Tier 1 pension plan is far more generous than the Tier II system or the present Tier IIA system.

The Tier I pension plan was closed to new enrollees at the end of 1984.  More than 88% of the state
employees in Tier 1 have already retired.  The remainder will be retiring in the next couple of years.

As of now, governments cannot legally go back and change benefit levels for those who have already retired (or probably even for those who have vested their pension rights).

That means the state of Connecticut is “on the hook” for those Tier I commitments.

Luckily for state government, IIA pension benefits are far more limited and the long-term cost will be significantly less after the Tier I obligations are met.

So how “generous” was the Tier 1 pension?

There are over 27,000 Tier I retirees and their average pension is $33,500 a year.

The underlying issue is that an employee’s pension is based on their salary and so employees with high salaries have high pensions.

Earlier this year, the Hartford Courant reported that there were 378 retired state employees with pensions greater than $100,000 in 2010 and 24 whose pensions exceeded “the governor’s salary of $150,000.”

Although the Courant went on to report that the average state employee pension was just a fraction of that
amount, those high pension amounts have stuck in people’s minds and politicians, editorial writers and the public have all responded by demanding wholesale reform of Connecticut’s pension program without understanding that (1) Connecticut has already adopted wholesale changes to its pension system (called
Tier II and then Tier IIA) and (2) the excessive pensions are primarily a product of the higher salaries provided to selected professionals (such as doctors and lawyers), state managers and political appointees.

First, the difference between Tier I, Tier II and Tier IIA are profound.

The average annual Tier I pension is $33,500

The average annual Tier II pension is $21,900

The average annual Tier IIA pension is $11,472*

Note that Tier IIA is relatively new and there are only about 900 retirees. The average will increase but will still be below the average Tier II annual pension.

But equally important is to understand the differences within the Tier I pension system.

Tier I average annual pension:     $33,500

Tier I average-managerial positions:     $63,540

Tier I average-elected/appointed positions:     $50,544

Tier I average-legislative staff:     $36,780

And remember, there are huge differences between Tier I, Tier II and the present Tier IIA.

Take managers for example.  While the average Tier I manager’s pension is $63,640, the average Tier II manager’s pension is $39,276 and the average Tier IIA manager’s pension is $18,098.

Meanwhile, compare the pension levels for managers, elected or appointed positions, and legislative staff to state of other categories of employees.

Average pension all tiers/all employees:     $29,000

Average pension-Maintainers:     $20,712

Average pension-Clerical:     $16,548

Average pension-Correctional officer:     $33,278

Average pension-Correctional supervisor:     $49,572

Average pension-Social/human services:     $29,232

Average pension-State Police:     $49,080

Average pension-UConn Faculty:     $59,256

Average pension State Auditor Office:     $98,952

The state of Connecticut is facing significant fiscal challenges, but unless and until politicians and editorial writers handle the situation honestly, it is going to be impossible for the public to understand and properly engage is the debate.

The Damn State Employees and Their Big Pensions – Burn ‘um at the Stake!

There is a lot of talk these days about changing the pension system for Connecticut’s state employees.

It might be useful for people to know the facts.

Is a pension of $19,800 excessive for a person who works 25 years and makes a salary of $60,000?

Is a pension of $30,900 excessive for a person who works 30 years and makes a salary of $80,000?


State employees hired since 1997 go into the Tier 2A Retirement Program.

While there are still some state employees left in the old Tier 1 and Tier 2 systems, the majority of state employees are now in the Tier 2A plan.

As of now, there are about 26,400 employees in the Tier 2A system.

Tier 2A members contribute two percent (2%) of their total annual salary to their retirement plan.  However, those in a hazardous duty position contribute five percent (5%) of their total annual salary to their retirement plan.

Since Tier 2A employees are new, not many have reached retirement age. So far, about 3% of the Tier 2A state employees have retired.

The annual state pension for these Tier 2A people is $13,206

Of the present Tier 2A retires;

1 receives a pension of between $70,000 and $80,000

1 receives a pension of between $60,000 and $70,000

5 receive pensions of between $50,000 and $60,000

5 receive pensions of between $40,000 and $50,000

34 receive pension of between $30,000 and $40,000

And the remaining 700 plus Tier 2A retirees receive pensions of less of over $30,000.

If the present system for Tier 2A employees is not changed, an employee with 25 years of service making $60,000 would get an annual pension of $19,800 An employee with 30 years of service making $80,000 would get an annual pension of $30,900.

Yes there are people getting large pension.

These people were primarily in the Tier 1 system that ended in 1984.

88% off all Tier 1 people have already retired.

For those who are condemning Connecticut’s state employees and calling for “systematic changes, remember that legally you can only change the system for those who have not yet retired.

So the question is;

Is a pension of $19,800 excessive for a person who works 25 years and makes a salary of $60,000?

Is a pension of $30,900 excessive for a person who works 30 years and makes a salary of $80,000?

The primary pension changes to the Malloy/SEBAC agreement would have primarily impacted Tier 2A employees.

Tier 1 and Tier 2 employees will have mostly retired by the time the changes take effect.

As you light your torches and join the mob calling for the heads of Connecticut’s state employees, make sure you know the facts…

The Governor knows the facts, he is just choosing to overlook them.

Just Look at them – The Damn State Employees and their Damn Pensions

(cross-posted from Pelto’s Point – New Haven Advocate)

Listening to the Governor and some elected officials, one of Connecticut’s most significant problems are the excessive pensions state employees receive.   Governor Malloy has called for a billion dollars in state employee concessions and one of the items he has highlighted is the need to reform Connecticut’s state employee pension program.  Other politicians and newspaper editorials have hailed his tough talk.

So let’s explore some of these issues – starting with state employee pensions.

Today’s question is – What is the Average Annual State Employee Pension?
(a)  $26,900
(b)  $31,900
(c)  $36,900
(d)  $41,900
(e)  $46,900
(f)  $51,900

The correct answer is (b).  Of the nearly 40,000 retired state employees who collect pensions, the average pension amount is $31,900 per year.

Let’s be clear, that is not to say that there aren’t individual state employees who were able to “game” the system prior to retiring and now receive larger than average pensions, but the truth is the average retired state employee receives a state pension of about $32,000 a year.

Average Connecticut State Pensions by Department or Agency

State Police $48,500
DOC – Central Office $39,732
Environmental Protection $38,700
Transportation $38,300
Criminal Justice $38,000
Corrections $36,400
Labor Department $36,300
Mental Health $35,700
Revenue Services $32,100
Social Services $30,500
Judicial $29,700
Vo-Tech High Schools $29,200
Mental Retardation $27,600
Motor Vehicle $25,400
Public Safety – Civilian $25,200
The real problem is not the number of retirees or the average pension employees receive but the fact that elected officials failed to set aside the funds necessary to pay state pensions and now the bill is coming due.

Imagine that instead of paying your full mortgage you only paid the bank 40% of what you owed each month and then at the end of 5 years you received a bill from the bank that you need to pay all the back money you owed.

Sure you would be upset about getting the bill, who wouldn’t?  But would you be angry at the bank?  Would you be angry at the house?  Would you be angry at the real estate agent who sold you the house?

Or would you admit that you really should have paid the amount due each month so that this day wouldn’t come.  
Listening to some of Connecticut’s elected officials – it is the state employees who are at fault for doing the work and getting the pensions or it is the fault of the employee unions for negotiating the contracts.

Of course, when one examines what occurred, the fault lies squarely with the elected officials who failed to make the required payments and now stand around shocked and dismayed that the bill has arrived.

Over the last three years, Governor Rell and the Legislature failed to make nearly $300 million in required payments to the pension fund and that was after two decades of underfunding the state pension fund (along with the huge losses in the value of the fund due to the stock market decline of the last few years).
The Governor and Legislators can call for pension reform all they want, they can seek to punish the state employees who have followed the rules and earned their pensions or they can stand up and take responsibility for their actions, pay the bills that need to be paid and discuss whether changes, if any, are appropriate moving forward.

Connecticut’s state pension fund in its worst shape since the state began saving for pension obligations in the mid-1980s.

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.