By Jim Demark, Bert von Stuelpnagel
Editors note: The writers are both members of the Darien RTC
The State of Connecticut has major budget problems, short-term and long-term. On Thursday, Feb. 25, the nonpartisan Office of Fiscal Analysis revised its deficit projections for the current fiscal year ending June 30, 2016 to $266 million, its third negative revision in as many months.
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The budget for the next fiscal year beginning July 1, 2016 is now out of balance by $900 million compared to original assumptions. Each of the two following years have deficits of $2 billion, more than 10 percent of the state’s operating budget.
MINI BOMBSHELL: GE is moving to Boston due to potential increases in corporate taxes and an increasingly hostile business environment in the state. According to census data, Connecticut has the 4th highest per capita tax burden, well ahead of Taxachusetts, New York or New Jersey.
MAJOR BOMBSHELL: How would you like to have your pension plan guarantee an annual 8 percent return? You would answer, don’t be ridiculous! But that is what the 96,000 employees and retirees in the state employee retirement system (SERS) receive. According to the Yankee Institute in Hartford, “Pension compensation for Connecticut state employees is roughly 5 to 10 times more generous than for a typical private worker.”
This is in addition to health care benefits for state retirees which are rare in the private sector and, in Connecticut, are twice as generous as paid by other state governments. These rapidly growing pension obligations have so overwhelmed Connecticut’s finances that only 39 percent of liabilities are now funded, one of the worst records of any state in the union.
BAND-AID – PASSING THE BUCK: So what have Governor Malloy and the Democratic Majority in the House and Senate done to address larger shortfalls on the revenue side and growing outlays on the expenditure side? Following the surprise shortfalls in tax receipts in December and January, the band aid for the short term is to cut aid to the underprivileged, subsidies to hospitals, transfers to Connecticut municipalities and school funding. Local taxes will surely go up.
BAND-AID – IGNORING THE INEVITABLE: The governor has proposed to extend the 2032 deadline for making up unfunded liabilities in the state pension plan into another decade. S&P has indicated that the governor’s deferral plan would lead to a downgrade of the state’s credit rating.
Telling your lender that you need more time to repay your loan has never been a sound strategy for a borrower in trouble. We need to restructure — and not “to pretend and extend”. Like New Jersey, our state government must begin negotiations with its union to convert the defined benefit plans of state employees to a defined contribution plan as in the private sector.
LONG TERM OPPORTUNITIES OR MORE BAND-AIDS? The Republicans had defined $630 million in annual savings as early as April 2015, reducing the budget gap for each and every fiscal year starting with the current one. The Republicans in the Assembly, including our State Rep. Terrie Wood, were more than willing to support Governor Malloy had he been serious about structural reform. He was not — and he rejected their sound proposal.
Last week, the Democrats in the Appropriations Committee, with Republicans in opposition, approved a 20 percent increase in pay over five years for UConn’s non-teaching staff as asked for by their unions. State employee and teacher unions must stop raiding Connecticut’s coffers — these coffers are empty!
The Democrats in the Assembly must cease to be the cheerleaders for the unions and begin negotiations with the union representatives on pension and salary give-backs. Benefits in the public sector cannot be larger than in the private sector. Governor Malloy and Senate Majority Leader Bob Duff need to be held accountable for the failure to rescue our rapidly sinking fiscal ship.