More than six years after taking office and mere months from leaving it, Gov. M. Jodi Rell proposed what she dubbed “bold” ideas to address some $34 billion in future benefits owed by Connecticut to state workers, for which revenue does not currently exist.
The question of unfunded liabilities for worker pensions and health care insurance is becoming a major issue in the fall campaign, with groups like the Connecticut Business & Industry Association having drawn attention to the problem. Hartford-based CBIA says the situation could dissuade some companies from relocating to or remaining in Connecticut, on fears the state may have to hike taxes to cover its future debts.
“If you ”¦ were to assign the cost of (unfunded liabilities) to every family in Connecticut, they would all get a $64,000 bill,” said Peter Gioia, CBIA vice president and economist, speaking this month at a CBIA economic conference in Rocky Hill.
If not addressed in any comprehensive way by Rell until now, her proposal is more than gubernatorial candidates Tom Foley and Dan Malloy have mustered to date, who face the ticklish proposition of possibly having to propose changes that will have a direct impact on state employees who typically turn out in good numbers on election day.
At a CBIA economic conference in Stamford this month, both men addressed the problem, but neither outlined a plan for erasing those projected deficits in their entirety. Without specifying dollar figures, Foley said he would attempt to move pension plans to defined contribution models such as 401(k) plans, while working to reduce health care costs.
While Malloy also talked up those two strategies while increasing transparency by applying generally accepted accounting principals to state government, he also vowed to keep up spending in areas like transportation infrastructure as a way to keep Connecticut competitive in future decades.
“Who will be the (Chris) Christie of Connecticut this year? I think that”™s the question,” said Fergus Cullen, executive director of the Yankee Institute for Public Policy in New Haven, referring to New Jersey”™s governor who ran on a platform of fiscal austerity. “I don”™t think (Rell”™s proposals are) nearly aggressive enough. ”¦ I think being halfhearted about this is not going to be a successful strategy.”
Still, at the very least Rell has furnished both candidates an initial set of options to deal with the growing problem that Rell, her predecessor John Rowland and the Connecticut General Assembly failed to address during boom years when Connecticut piled up surpluses and programs requiring new spending.
In a prepared statement, Rell defended her record.
“My budgets have generally insisted on making the full actuarially recommended contributions to retirement accounts, though the past two challenging fiscal years have led to limited, agreed-upon pension deferrals,” Rell stated. “It is time for bold and decisive measures ”“ steps that in the past might have been dismissed out of hand or rejected by previous legislatures.”
Shortly after Connecticut received $30 million in federal funding to help cover the cost of health care insurance for state workers taking early retirement, Rell made more than a dozen proposals on how to cut into the gap in other ways, without providing specifics on how much each would reduce the state”™s overhanging liabilities.
Rell wants Connecticut”™s state government to:
Ӣ establish a defined contribution plan for new employees;
Ӣ increase employee contributions toward pensions and other post-employment benefits;
Ӣ make no cost-of-living-adjustments during years when state investments lose money;
Ӣ increase early retirement to age 60 and increase the penalty for early retirement;
Ӣ increase normal retirement age to 65;
Ӣ increase the premium share for retiree health insurance;
Ӣ reduce health costs through service changes, such as higher co-pays for emergency room and specialist visits;
Ӣ move final average salary computation from 3 years to 5 years for pension purposes; and
Ӣ cap maximum pension salaries at $100,000.
Rell also would refine the so-called “rule of 75” that governs when pensions are triggered, according to a formula that adds a worker”™s age and years of government service. Rell would replace it with a “rule of 80” that would force workers to accumulate additional service time before collecting vested benefits.
