Compromise on long-term state pension fix
G ov. Dannel P. Malloy has made it clear he has big disagreements with the Republican budget the legislature approved a week ago, after several Democrats crossed the party line to back the minority spending proposal. But Malloy should agree with additional steps that Republicans propose to trim future pension costs, while Republicans should consider his concern that the legislature not again underfund the pension system.
On that important question, at least, there should be a path to compromise.
Malloy has done a far better job than his predecessors in pushing the legislature to adequately set aside funding for the pension plan. That commitment has made the job of balancing the budget more difficult and contributed significantly to unpopular tax increases.
Though there has been progress, it will take many years of dedicated funding by the legislature to catch up and get to the point where state pensions are adequately funded. Malloy had good reason to criticize a provision in the Republican-sponsored budget that would cut pension contributions by $144 million this fiscal year, $177 million next.
At a press conference, Malloy, a Democrat, referred to it as, “A return to Rowlandnomics.” It was a reference to former Republican Gov. John G. Rowland, who struck a deal that shortchanged the pension fund for years in return for short-term fiscal and political gains. A payto-play scandal later drove Rowland from office and into prison.
What Malloy sidesteps, however, are the tough-minded proposals contained in the Republican plan to control future pension costs.
Malloy only recently negotiated a concession deal with the state labor unions, providing significant short- and long-term savings, an estimated $24 billion over the next 20 years. It included pay freezes, increased employee contributions toward their pensions and health benefits, and a hybrid 401(k)-style plan for new hires.
But it also extended by five years the contract covering benefits for all unionized state workers, which will now expire in mid-2027. That extension was among the primary reasons Republican lawmakers united in opposition. Yet Malloy could not have gained the concessions he did without it.
The budgetary legislation passed by the Republicans would fundamentally change the state/labor relationship when the benefits’ contract expires in 2027. It would set as a matter of state law, not as a subject of contract negotiations, a 7 percent employee contribution toward pensions, end cost of living adjustment for pensioners until the fund is back in balance, and no longer allow overtime pay to be used to inflate pension benefits.
Malloy warns this proposal would lead to a legal challenge by the unions and may be illegal. Yet an opinion issued by Attorney General George Jepsen last July would appear to place the Republican plan on firm legal footing. While Jepsen said attempts to unilaterally amend existing contracts to address the budget crisis could run into legal trouble, he opened to the door to statutory changes to achieve labor savings in the absence of a contract.
Without a renewal, there will be no contract when the current agreement expires in 2027. Other states define these benefits by law, not by contract.
When Malloy pushed his labor concession deal through the legislature, he needed critical votes from a trio of moderate Senate Democrats — Paul Doyle of Wethersfield, Joan Hartley of Waterbury and Gayle Slossberg of Milford. In the end, they supported the labor deal, but in doing so they presented party leadership with some demands to trim spending over the long term.
Among their demands was ending cost of living adjustments negotiated by contract and making COLA rules a matter of law, while also prohibiting the use of overtime to inflate pensions. Democratic legislative leaders ignored the request in their budget, while Republicans included the provisions and gained the three Democratic votes in the process.
But by including $321 million in reduced pension payments this year and next based on anticipated savings a decade from now, Republicans open themselves to criticism of playing the same old game. While the actuarial math may work, the safer play is to keep investing in the pension as planned.
Our compromise recommendation on this point is that Republicans cut all or most of those anticipated pension savings from their proposal, perhaps offsetting them with a small across-the-board cut in state education grants for wealthier towns with the ability to pay their way.
In turn, Malloy should endorse the proposal to bake in the post-2027 savings contained in the Republican plan. Union members would certainly have ample opportunity to prepare for the coming change.