Bankrupting Connecticut – Nothing to see here – Just keep moving

The Wait, What? Blog was created in January 2011.  Since then, 2,340 articles have been posted to the site.  In turn, the commentary pieces have generated well in excess of $2 million hits.

One of the most constant refrains has been the problems and dangers associated with the excess debt that is dragging Connecticut down and the irresponsible failure of the state’s elected officials – both Democrat and Republican – to deal with that mounting crisis

Initial posts to Wait What? included More on the issues underling Connecticut’s State Employee Pension System (1/25/11) and Connecticut’s state pension fund in its worst shape since the state began saving for pension obligations in the mid-1980s. (2/1/11).

Over the years came additional posts such as;

Look-Out – He’s got our credit card and he is going nuts!  (3/24/15)

WARNING!  WARNING! The state of Connecticut’s Fiscal Health  (11/18/14)

Malloy’s “NO TAX” pledge will send Connecticut into the abyss  (5/6/14)

The State Budget Gimmick to End all Budget Gimmicks (12/1/14)

Is that your credit card? Why yes, yes it is…. (9/26/13)

Connecticut: The Republic of Debt    (6/19/13)

And many, many more….

The effort to alert, warn and educate citizens about the fact that elected officials are failing to address Connecticut’s extraordinary debt crisis highlights the words of Jonathan Kozel, the great public education advocate and award winning author, who once wrote;

“Now, I don’t expect what I write to change things. I think I write now simply as a witness. This is how it is. This is what we have done. This is what we have permitted.” – Jonathan Kozol

And as if to prove the point, the debt crisis has gotten even worse thanks to the actions and inactions of Governor Dannel Malloy, Lt. Governor Nancy Wyman and the Democratic controlled Generally Assembly.

As if to drive the point home, today’s CT Newsjunkie headline reads, Pew: Connecticut Has One of Highest Public Debt to Personal Income RatiosThe story reports;

Connecticut has one of the highest ratios of debt to personal income and the fifth highest ratio of state retiree health care liabilities to income, according to a Pew Charitable Trusts report released Tuesday.

The report, which measured each state’s pension, health care and debt costs as a percentage of personal income, put Connecticut’s total liabilities at $67.5 billion dollars or 30 percent of personal income.

The ratio of public debt to private income is 8.8 percent, which ties Connecticut with Massachusetts for the second highest rate of public debt. When pension, healthcare and public debt are totaled, Connecticut has the fifth highest rate of unfunded liabilities.

Connecticut’s pension woes are well documented. The state’s pension obligations are about 40 percent funded, according to the 2015 actuarial valuation of the fund. Only 7 other states have a higher rate of unfunded liabilities.

Courtesy of CT Newsjunkie
Courtesy of CT Newsjunkie

 

While the information is hardly new, it remains extremely newsworthy.

It is newsworthy, in part, because Connecticut’s politicians are making things worse, not better and because many of them won’t even tell the truth about the crisis.

Take for example, the notorious failure to properly fund Connecticut’s pension obligations.

The new technique for ducking responsibility is to talk about “structural change,” as if we could just pass a law to reduce the problem with unfunded pension obligations.

The fact is that a state employee hired today is placed in what is called Tier III of the Connecticut State Pension System.

Tier IIA was already the least generous pension in New England, Tier III provides is even stingier.

The real reason Connecticut owes so much money to its Pension Fund is that, for the past four decades, the state has FAILED to make the necessary payments into the fund and has even raided the fund to pay for annual budget expenses.

As the CT Mirror’s Keith Phaneuf has written over and over again, and the CT Newsjunkie explains today;

The state will have to pay more than $1.5 billion into the pension fund this year to meet the annually required contribution, of which $1.2 billion represents unfunded liability or an amortization payment toward past unfunded liability. An estimated 82 percent of that payment represents the payment for unfunded liabilities. The normal annual cost of pension benefits is less than $300 million.

Had Connecticut been making its payments all along, there wouldn’t be a pension fund problem.

If Connecticut had been funding the Pension Fund correctly, the state would now have about $1 billion available to preserve vital services and begin the process of providing adequate funding to Connecticut’s public schools, and thereby reducing the unfair property tax burden the is helping to crush the Middle Class.

Instead, scarce taxpayer money is going to address the excess debt — and still the debt grows.

Over the four decades, Connecticut has had 3 Democratic governors, 2 Republican governors and an Independent/Republican governor.  Not one of them was willing to do the right thing.

A recent public opinion poll listed Dannel Malloy as the 2nd least popular governor in United States.

Malloy’s response was that his “numbers were low” because he was making the tough choices and doing the right thing.

But of course, nothing could be further from the truth.

Malloy’s legacy is not about doing the right thing.

Among Malloy’s list of failures is his refusal to properly address Connecticut’s long term debt.

You can read the important CT Newsjunkie story at: http://www.ctnewsjunkie.com/archives/entry/pew_connecticut_has_one_of_highest_public_debt_to_personal_income_ratios/

State Treasurer Denise Nappier’s powerful statement about Malloy’s State Employee Pension Proposal

Connecticut’s State Treasurer Denise Nappier deserves significant praise for stepping forward and having the courage and conviction to speak the truth about the legitimate concerns surrounding Governor Dannel Malloy’s proposal to fundamentally change the way Connecticut funds is massively underfunded State’s Employee Pension Fund.

Just three years ago, Malloy called on Connecticut to aggressively resolve the state’s historic unwillingness to properly fund its State Employee Pension Fund (See January 2012 Wait, What? post  Malloy Takes Bold Step – Proposes Paying for State Pension Fund the Right Way.)

However, Malloy recently reversed his previous position and rather than focusing on making the State Employee Pension Fund more financially sounds, Malloy proposed shifting a significant portion of the shortfall onto the backs of our children and grandchildren. Continue reading “State Treasurer Denise Nappier’s powerful statement about Malloy’s State Employee Pension Proposal”

Malloy kicks the can so far down the road that it land’s right on our children’s heads

The voters of Connecticut need to pay special attention to Governor Dannel Malloy’s irresponsible proposal to change the way that Connecticut funds its pension program for state employees.

Governor Malloy’s plan is nothing more than an outrageous maneuver to balance his failed state budgets on the backs of our children and their future.  As the title of yesterday’s Wait, What? blog stated – Connecticut: BEWARE of Governor Malloy’s most fiscally irresponsible budget proposal yet.

The CT Mirror’s Keith Phaneuf provides more information about Malloy’s proposals in his latest article, explaining that the new initiative violates one of the most fundamental promises Dannel Malloy made when he was running for governor in 2010.

Keith Phaneuf writes,

“One year after taking office, Gov. Dannel P. Malloy vowed to accelerate payments into the state’s cash-starved pension fund, much as a family might make extra mortgage payments now to lessen balloon payments looming in future years.”

But not surprisingly, although Malloy pushed through significant tax increases in 2011 and 2015, he used the additional funds to pay for other things and never followed through on his commitment to make those extra pension payments.

Now, in the face of new state budget problems, Malloy is completely reversing his stand on properly funding Connecticut’s State pension fund and proposing “kicking the can” down the road by pushing off $8 billion in necessary pension payments onto the next generation of Connecticut taxpayers.

Phaneuf notes,

“Under the governor’s plan, Connecticut still would catch up on its pension contributions — after 2032.”

But as the CT Mirror reports, the Governor who seems unable to tell the truth denied reality, once again, claiming,

“We are not kicking anything down the road,” Malloy said, citing a phrase he and other gubernatorial candidates used in 2010 to describe the fiscal gimmicks that had weakened the pension system and created a record-setting state budget deficit at that time.

“It is simply irresponsible to leave more and more debt for future generations.”  Malloy wrote in his 2010 campaign platform on “Taxes & The Budget.”

The governor insisted this week that it would be irresponsible to pretend state finances, and taxpayers, could afford a $6 billion-plus pension expense down the road.

Postponing some pension payments until later to avoid that fiscal iceberg is the best option, Malloy said, adding that his new plan would “smooth out” the late-term costs.”

However, the truth is that the real spike in the amount of money needed to meet the required pension payments – the real “iceberg” Malloy is referencing – does not occur this year, or next year or even the year after that.

The harsh reality is that Governor Malloy isn’t offering up this new pension funding plan because he is worried about whether the state can make its required pension payments in 2025, he is doing it NOW because he wants to use the money that we should be paying into the pension fund over the next few years to balance the state budgets during his remaining time in office.

This is not an issue of Democrats versus Republicans or Liberals versus Conservatives.  Nor is it a debate about whether there should be addition changes to Connecticut’s state employee pension program.

This debate is about whether Connecticut will fulfill its financial obligations to the state pension fund or allow Dannel Malloy to divert that money to balance his state budgets and reduce the need for additional tax increases or budget cuts.

There will always be politicians like Dan Malloy who would rather dump problems on someone else rather than actually tackling the job of developing fair and honest balanced budgets.

That said, what is not be acceptable is allowing Malloy to resolve the mess he created by dumping the problem on our children.

Connecticut BEWARE of Governor Malloy’s most fiscally irresponsible budget proposal yet.

“Gov. Dannel P. Malloy outlined Wednesday a sweeping plan to overhaul state government’s pension system.”  – CT Mirror 10-29-2015

Governor Dannel Malloy’s state budget, that took effect last July 1, is already a quarter of a billion dollars in deficit and the problem is actually far worse.

Next year’s state budget is even more out of balance and after the next election, when legislators reconvene in January 2017, Connecticut will be facing a two-year General Fund Budget Deficit of $1.6 Billion … YES, A DEFICIT OF $1.6 BILLION … [A deficit of at least $927 million in FY 2018 and $831 million in FY 2019.]

In order to address that problem, Governor Dannel Malloy is proposing to dramatically change the way Connecticut funds its state employee pension system.

The maneuver is intended to reduce the amount of money the State of Connecticut puts into its pension fund in the short-term – thereby reducing the hole in Malloy’s state budget.

However, by failing to make the required pension payments in the years to come, Malloy’s plan would shift as much as $10 billion dollars onto the backs of our children.

If Malloy’s plan is adopted, the additional spending would start in 2033.  While it seems years away, the fact is that a child born today will turn 17 in 2033.  Connecticut, like the United States, has already taken on too much debt.  Making the required pension payments as we go forward will not be easy, but shifting the burden to our children and their future is even worse.

Malloy’s proposal is complex and thus will get limited media coverage, or worse, no coverage at all.

Today the Stamford Advocate published an editorial entitled, Malloy initiative on taxes and payroll a good oneWhile complementing Malloy and his budget director, the editorial didn’t even mention Malloy’s pension proposal even though the impact of his plan will be significantly greater than his proposal to cut taxes for GE and reduce the number of state employees.

The lack of reporting is no excuse for not following the issue and demanding that legislators act appropriately.

All voters should start by reading Keith Phaneuf’s article, Malloy calls for big change in pension financing, in yesterday’s CT Mirror and then continue to monitor his coverage and the articles written by other reporters at the State Capitol.

When making the announcement yesterday, Malloy called his plan a “bold move.”

Connecticut’s elected officials, including Governors O’Neill, Weicker, Rowland, Rell and Malloy have all failed to properly fund Connecticut’s pension programs, but there is absolutely nothing bold about simply shifting the burden to the next generation.

Connecticut voters across the political spectrum should take note.  Whether liberal, conservative or moderate, whether Democrat, Republican or other, Malloy’s pension plan will dramatically impact Connecticut Government and the rate of taxes and spending.

Many of those who will be most impacted by the pension plan are only children.  Others have yet to be born.

Do not let our elected officials make this decision in vacuum.

Learn the facts and speak out.

As noted in yesterday’s Wait, What? post – Fiscal responsibility does not begin with running away from our obligations!

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

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/