State employee unions and Governor Dannel Malloy this week reached agreement on a package of concessions totaling over $1.5 billion in savings needed to help close Connecticut's $5 billion budget deficit.
The agreement includes wage concessions, increases in medical and prescription payments for state workers, changes to retirees' healthcare, and pension changes that include a hybrid pension/defined contribution plan for new workers.
The Malloy administration says the agreement saves $10 billion over 10 years, and $20 billion over 20 years.
But the agreement also extends the current pension and healthcare contract five years to 2027, and includes job protection assurances through 2020.
“The governor has been working hard to begin to address public employee and retirees’ benefits to make them more affordable for Connecticut taxpayers as he's negotiated changes to pensions, healthcare, and defined benefit contributions,” CBIA President and CEO Joe Brennan said.
“But we are disappointed that the current agreement doesn't go farther in several areas, such as using overtime to increase pensions.
“We are also hearing serious concerns from our members about the contract extension and protections tying the hands of future governors and legislatures.”
Our members have serious concerns about the contract extension tying the hands of future governors and legislatures.
Lawmakers and others are awaiting the results of an independent actuarial analysis to confirm the savings.
The plan calls for:
- Withholding employee raises for three years, resulting in savings of $385 million in 2019, with raises of 3.5% in 2020 and 2021
- Reducing to 60% the amount of overtime earnings that can be credited to an employee's pension
- Increasing employee pension contributions 2% by July 2019
- Creating a hybrid pension plan for new workers
- Changing and delaying the cost-of-living adjustment in retiree pensions, which help stabilize the state's annual pension costs
- Moving retirees over age 65 to a Medicare Advantage Plan, saving $218 million in the first two years
Most of the unions under SEBAC are expected to vote on it about a week before the current fiscal year ends on June 30.
Concessions Deal: Preliminary Savings
|FY 2018||FY 2019||FY 2020||FY 2021||FY 2022|
|Wage Concessions||$348 million||$385 million||$510 million||$510 million||$510 million|
|Active Employees' Healthcare||$66 million||$70 million||$75 million||$81 million||$86 million|
|Retiree Healthcare Changes||$81 million||$147 million||$137 million||$150 million||$152 million|
|Pension Changes||$197 million||$233 million||$265 million||$269 million||$289 million|
|Other||$16 million||$10 million||—||—||—|
|Totals||$708 million||$845 million||$987 million||$1.01 billion||$1.04 billion|
Reactions to Agreement
Malloy and Democratic legislative leaders praised the deal.
“This framework will surely create more affordable and more sustainable labor costs in a way that generates structural, long-term savings of over $20 billion over the course of the next two decades,” Malloy said.
"This really is a victory and does indicate there will be substantial savings," said Senate President Pro Tem Martin Looney (D-New Haven).
"This does represent short-term and long-term significant savings for the state.”
Senate Republicans, who called for $2.2 billion in savings from unions, said the deal falls short.
"I believe there should be more (savings), and I think I would have negotiated more if I was at the table, like our budget talked about,” said Senate Republican Leader Len Fasano.
“But now the question is: 'How am I going to deal with this deal before me?'
"I have to wait for the numbers to come back from the experts."
House Republican Leader Themis Klarides (R-Derby) was also critical.
“Committing taxpayers, future governors and the next five legislatures to paying for fringe benefits that are unseen anywhere else but in state government—and a pension system that is collapsing around us as we speak—is unfathomable," she said.
“After months of negotiations, this proposed deal falls short of where we need to be.”
Part of the Picture
Union concessions are just part of the budget picture.
Over the past two weeks, four bond-rating agencies have downgraded Connecticut's rating.
If the state does not adopt what the agencies view as sustainable budget practices, there could be further downgrades.
In addition, the Federal Reserve Bank is certain to raise interest rates several times over the next 18 months, which adds to the state’s borrowing costs.
That's on top of a revenue shortfall of more than $300 million in the current fiscal year due to low April tax receipts. And that forces lawmakers to assume lower revenue projections in the biennial budget.
Part of that April “tax surprise” can be attributed to wealthy taxpayers leaving the state.
That could impact future budgets and revenue projections if more wealthy people decide to move, taking their tax payments with them.
Tax increases haven't worked out. Moving in that direction is not one the caucus is willing to do right now.
While the agreement does not prohibit layoffs, it contains conditions that significantly discourage any mass layoffs over its length.
Malloy already issued layoff notices to 1,100 state workers, and threatened to layoff as many as 4,200 if no agreement was reached.
House Speaker Joe Aresimowicz (D-Berlin) said the deal is good, especially when compared to raising taxes.
“We've had two pretty large tax increases that the majority leader and I voted for that we really thought were in the best interest of the state, that would get us to a place where we wouldn't have ongoing deficits," Aresimowicz said.
"They haven't worked out. The inclination to move in that direction is not one that the caucus is willing to do right now."
CBIA and its members urge lawmakers to adopt a budget that is sustainable, especially given the state's uncertain revenue picture.
We are also concerned with the impact the five-year extension of the pension and healthcare contact could have on future administrations.
These should all be part of the discussion in crafting a budget.