Connecticut's state House Monday narrowly approved the $1.57 billion concessions deal reached between the Malloy administration and state employee unions.
Lawmakers endorsed the agreement on a 78-72 vote, with one Democratic legislator and all Republican House members voting against it.
The state Senate is now expected to vote on the measure Monday, July 31.
The agreement struck with the State Employees Bargaining Agent Coalition is a key part of the Governor's proposal to close the state's two-year, $5.1 billion budget deficit.
It includes a temporary wage freeze, furlough days, increases in medical and prescription payments for state workers, changes to retiree healthcare, and a hybrid pension/defined contribution plan for new workers.
However, it also extends current state employee contracts another five years to 2027 and includes no-layoff provisions.
CBIA president and CEO Joe Brennan said the five-year contract extension concerned many in the business community.
"I've been hearing from a number of our members, large and small, who are concerned the contract extension could lock in pension and healthcare costs that are not sustainable over the long term," Brennan said.
Growing state employee retirement costs are one of the main factors driving the persistent deficits that have dominated state budget debates since the last recession.
"Connecticut has a $5.1 billion problem," Brennan said, referring to the state's current projected two-year deficit.
Connecticut has a $5.1 billion problem. This deal is $1.5 billion of it, but there's still a long way to go.
Brennan said the ongoing budget stalemate was also generating growing concern among businesses.
"Our members are telling me that the lack of progress on the budget further hurts Connecticut from a business climate standpoint," he said.
"They want to see a budget deal done as soon as possible."
'No Tax Hikes'
Brennan urged lawmakers to resist calls for more tax hikes to balance the budget, noting that massive increases in 2011 and 2015 led to shrinking revenues and greater deficits.
"That approach doesn't work," he said. "It only makes things worse.
"If Connecticut is going to reach its full economic potential, we urgently need a budget without any broad-based tax increases."
A nonpartisan national policy research group this week recommended legislators consider additional policy measures that would broaden the forecast savings in the SEBAC deal.
The Pew Charitable Trusts analyzed the agreement and made a series of recommendations, including:
- Commission a 50-state comparative study of retirement benefits and policies, to help ensure Connecticut is in line with peer states
- Require stress test analysis of all retirement plans as part of regular reporting to determine how plans would perform during a financial crisis
- Consider adding future provisions that incentivize state workers to save more in defined contribution accounts given the low mandatory savings rate of 2% of pay
While Pew's analysis supported many of the agreement's projected savings, it did warn the cost of state employee retiree healthcare would likely rise again after two years.
Pew said its report was provided at the request of state policymakers and "does not constitute an endorsement of the agreement or address a comprehensive solution to the state's long-term fiscal challenges."
It noted that Connecticut is one of just four states that address public sector retirement benefits through collective bargaining.
Most states define retirement benefits through statute, with lawmakers able to modify or repeal labor agreements with legislative action.