Will Refinancing Open the Door for Pension Reform?

The pension agreement Gov. Dannel P. Malloy reached with state employee unions is designed to spread payments to the pension fund over several years so taxpayers won’t be saddled with annual installments as large as $6 billion.
“We’re doing stuff in the short run that we need to do,” state budget director Ben Barnes told members of the legislature’s Appropriations Committee Jan. 24, before they voted to endorse the governor’s deal with SEBAC, the State Employee Bargaining Agent Coalition.

“What we’re trying to do is solve a problem that is going to rear its ugly head in the coming decades.”
This is a valid point on which we agree.
But to some, including CBIA, the administration’s refinancing deal with the unions must be the first step in a long-overdue and much-needed reworking of the state pension system.

Structural Reform?

In written testimony to the committee, CBIA economist Pete Gioia expressed support for the agreement, but not the pension fund’s overall health.
“We concede that without this agreement, which is essentially a refinancing of the state’s obligation, the state will be forced to make significant cuts to services, or yet again raise taxes–to unparalleled levels,” Gioia said.
“However, we still need an agreement to overhaul the entire State Employees Retirement System.
“This new pension agreement, by itself, provides no real structural reform to make the SERS system sustainable, nor does it provide sufficient, long-term benefits to Connecticut taxpayers.”
Real structural reform includes ending the use of overtime pay to calculate pensions, which can double and even triple a retiree’s base pay, and stopping cost-of-living increases that exceed in percentage points what the pension fund earns annually.
These reforms are needed because the current system is no longer affordable for taxpayers.

“The problem is that it doesn’t go far enough in addressing the issues...with the overall pension program and unfunded liability and everything that goes with it,” said Rep. Arthur O’Neill (R-Southbury).
State Rep. Melissa Ziobron (R-East Haddam) also said that while she understood the need for the deal, it does nothing about the issues Gioia mentioned.
“I don’t know what’s in store for the taxpayers of Connecticut,” she said.
Ziobron said she doesn’t blame state workers who pad their pensions by working many hours of overtime in their final years because the system allows it. In fact, she spoke of one DCF worker who retired with a pension three times his base pay.
But Dan Livingston, chief negotiator for SEBAC, said he had no issues with the state pension system, other than the state not properly funding it.
He said the overtime clause benefits blue-collar workers, who often earn less than salaried workers, and put part of the blame for overtime on staffing decisions made by managers.

State: 'Our Position Hasn’t Changed'

Barnes wouldn’t say if the state is trying to renegotiate pensions, citing the confidentiality of labor talks.
“We have publicly asked them to discuss further changes to the SEBAC agreement with us, and I don’t think our position has changed,” Barnes said.
“We continue to have discussions in a general way with labor but that’s all I want to say about it.”
He and Malloy have said the plan will avoid a spike in annual payments to the fund of $6 billion by 2032.
Instead, they said, it sets annual payments at about $2.5 billion until 2021, after which they would stabilize and begin to decline.
Several lawmakers, including Senate Republican President Pro Tem Len Fasano of North Haven, were hopeful the agreement is the first step in an overhaul of the pension system.
“It’s not just restructuring of the payments, we should restructure how pensions are administered in this state,” Fasano said.
Senator Joan Hartley (D-Waterbury) said she views Malloy’s agreement with SEBAC as “the beginning of the solution” of the state’s pension issues, and was hopeful lawmakers would find that solution this session.
Senators on the committee approved a Senate resolution on the deal by a 10-2 vote while House members approved a House resolution 30-10.
The resolutions now go to the respective chambers for a Feb. 1 vote.
If no vote is taken, by law the agreement goes into effect automatically 30 days after the Jan. 4 opening of the legislative session.

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For more information, contact CBIA’s Pete Gioia (860.244.1945) | @CTEconomist