Governor Lamont has recently released his second biennial budget (FY22, FY23). It was a pleasant surprise to see he rejected job-killing calls from the progressive wing of his party for increases in the income and capital gains tax and a new statewide property tax.
His budget does rely on one-time federal dollars and the Budget Reserve Fund (which was thankfully resurrected by the Senate Republicans in the 2017 bi-partisan budget.) Inexplicably there is an additional payment of $427B into the pension funds of “excess” money, while many in the private sector have been devastated and are desperate for assistance. And there are storm clouds on the horizon. The Three Year Outyear Report shows big deficits for FY24, FY25, and FY26.
Keith Phaneuf, the CT Mirror budget reporter, recently gave a mostly clear-eyed assessment of Connecticut’s dire fiscal condition. He accurately noted the budget fails to address the “monumental bill coming due” (pension obligations) over the next 20-30 years. He goes on to state that Connecticut “has no choice but to pay” and will be forced to turn on the “big revenue engines.” He concludes by acknowledging Connecticut will continue its “long decline,” and this “may be the death of Connecticut as you know it.” His bleak assessment, while certainly a possibility, is not destiny.
Connecticut has the dubious distinction of its pension payments being neither affordable nor sufficient and it is clear this budget ignores the “monumental bill” in the room.
It’s obvious we can’t afford the payments when you look at the long list of vital public programs that have been crowded out: social services, nursing homes, hospitals, municipal aid, PILOT, transportation, and higher education, etc., have all been starved of revenue. Not to mention the dramatic decline of our business climate due to relentless tax increases. As Dan Malloy admitted “every cent of additional revenue that has come in since 2011 goes to pay pensions.”
A recent analysis from JP Morgan determined our unfunded pensions and retiree healthcare are consuming almost 40% of revenues. It’s also notable that this is the third biennial budget in a row that pension debt has been refinanced and passed on to our children.
To make matters worse the huge Actuarial Required Contribution’s into the pension systems have been unable to improve funding levels and, in fact, funding levels actually declined over the last decade. In 2011 SERS was 48% funded, as of 2019 it is 38% funded. Mind you, that is after a decade long bull market, two contract re-negotiations, large tax increases, and supposedly paying the full ARC. Something is not right.
We are a decade late, but we need to find out what went wrong, and find a solution. This will require political will and leadership. Gina Raimondo in Rhode Island demonstrated such leadership in 2011 with her plan “TRUTH IN NUMBERS: The Security and Sustainability of Rhode Island’s Retirement System.” Similarly, we could start with a bi-partisan commission to assess the solvency of our pension and retiree healthcare systems with the goal of recommending a plan for achieving long term viability. We must not fail!
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