August 17, 2024 6:00 am
• Last Updated: August 16, 2024 10:49 am
I’ve said that Gov. Ned Lamont’s “Connecticut Comeback” and his claimed “progress on pensions” are myths, so I was interested in CT Mirror’s report that the “Brand new CT budget (is) already plagued by a $170 million hole” in the very first month of the new fiscal year. This news doesn’t have the ring of a “comeback.”
According to the Office of Fiscal Analysis, the “hole” was caused by a $70 million “shortfall in the Higher Education Alternative Retirement (pension plan) line item.” Another $40 million took the form of a “deficiency in the Teachers’ Retirement Board budget (teachers’ pension fund) due to a shortfall in the Retirement Contributions line item…” Doesn’t sound like progress on pensions.
It is only one month, but these negative numbers are red flags, reminding us that unfunded public pensions remain a huge problem in Connecticut.
Under Lamont, the unfunded liability in the state employee pension fund (SERS) has gone virtually unchanged over his six years in office. It was $21.2 billion just before he took office in 2019; it was $20.1 billion in the latest (June 2023) valuation report of the state’s pension actuaries. That’s a mere 5% improvement — or about 1% annually. At that rate, it would take a century to fully fund SERS.
More deeply troubling is that this scant progress is all that has been achieved in the best of financial circumstances. The state has received billions in federal COVID aid, and the surging stock market has generated very robust tax revenue from investment gains. The gains have generated $5 billion in special deposits to SERS.
Combined with the $9 billion in actuarially required annual state contributions to SERS over the five years, $14 billion has been infused into SERS. That this has reduced the unfunded liability by just $1.1 billion is confounding.
So where did all the money go?
It went into much more generous pension benefits awarded to state employees during Lamont’s time in office. How did this come about? It is elementally simple. State employees have received a 33% wage increase over the six years of Lamont’s tenure. Since pensions are based upon wage levels, pension obligations have increased by a similar amount.
It is worth emphasizing this simple point with the actual yearly wage raises that state employees have received over the last six years: 5.5%, 5.5%, 4.5%, 4.5%, 4.5% 4.5%, which compound to 33%. A state employee who was paid $75,000 when Lamont was inaugurated is making $100,000 this fiscal year. Someone retiring in 2024 is receiving a pension benefit calculated based upon $100,000.
All of this largesse was funded by COVID aid and by taxes on stock market gains, not by an economy that anyone would classify as making a “comeback.” Indeed, according to the latest data from U.S. Bureau of Economic Analysis, Connecticut’s real economy grew at a compound annual rate of only 0.6% from 2018 to 2023. The national economy grew 3.5 times as fast, at a rate of 2.1%.
The outlook is even worse. The national economy and hiring are slowing, and unemployment is rising.
Within the next few months, Connecticut will expend the last $370 million of the $2.8 billion of COVID assistance that Uncle Sam provided the state over the last four years.
The stock market outlook is uncertain. Yet, it is unlikely that it will advance if the economy continues to slow. So, the robust tax revenue from the incredible gains that stock market investors have booked over the last six years is unlikely to continue to flow into the state’s coffers.
One wonders why Lamont awarded state employees such ginormous wage increases. State employees were already making one-third more than comparable private sector employees when Lamont took office, according to nationally recognized pension expert Dr. Andrew Biggs. In a study commissioned by Nutmeg Research Initiative and overseen by The Townsend Group, which I head, Dr. Biggs found that the one-third premium was the fifth-highest of the 50 states. Yet, Connecticut had the fifth-most underfunded pension fund.
Except there is no wonder why Lamont has paid these high wages. Most state workers are unionized. The unions helped Lamont get elected and re-elected. The wage raises are payback.
For ordinary citizens and taxpayers, the entire “pension-progress/comeback” charade is grossly unfair. Ordinary citizens are paying high taxes so that state employees can out-earn them by an enormous margin. And the worst is yet to come. The budget and pension funding trends make future tax increases almost inevitable.
Democrats have controlled this state for almost a half century, but for a single term in the state Senate. Under Republican governors, they have been able to block anything not to their liking. Under Lamont and his predecessor, Democrat Dannel Malloy, Democrats have had absolute control. They have been able to do virtually anything they have wanted. It is time for a change.
Red Jahncke is the founder and CEO of Connecticut-based The Townsend Group International, LLC. He is a nationally recognized columnist who writes about politics and policy.
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Publish date : 2024-08-16 23:18:00
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