Lamont reveals budget plan, now the hard part

February 20, 2019

In his first budget proposal, Gov. Ned Lamont delivered on his campaign pledge to promote genuine structural change, recognizing that without it Connecticut will continue to lurch from one fiscal crisis to the next. Fixed costs tied to keeping long underfunded state pension plans solvent and meeting the obligations on 21.2 billion in fiscal year 2020, a 1.7 percent increase, and 3.7 billion budget deficit projected over the next two years.

Among the more pressing structural challenges is getting the state’s fund to provide pensions for retired teachers under control. If the legislature does nothing, keeping the plan solvent will require an increase of about 3.4 billion in 2032.

Lamont would extend the time to address the unfunded liability from the current 12 years to a 30-year period. Yes, the state will pay more, but payments become manageable. As part of the plan, Lamont would also divert 2 billion, while maintaining the rest of the fund for a future crisis.

Finally, and controversially, the governor would seek town contributions toward the teacher pension fund, with affluent towns paying more and struggling towns and cities little. The legislature shot a similar approach down when former Gov. Dannel P. Malloy proposed it in 2017, but Lamont is not asking as much, particularly from communities hard pressed to afford it.

In showing he is not ready to wish problems away, Lamont would base accounting of both the teacher and State Employees Retirement System plans on a 6.9 percent rate of return on investments, not the existing rosy 8 percent.

Concerning the state employees retirement plan, the governor would cut cost-of-living increases awarded to retired state employees if returns on pension investments under perform. COLA adjustments would be capped at 1 percent if returns fall short of expectations.

The governor also wants the state to have the ability to negotiate a maximum price it will pay hospitals, clinics and doctors under employee and retiree health plans. This approach would restrict the medical choices state employees and pensioners now enjoy.

Finally, he wants to remove mileage reimbursements from pension calculations, an absurd practice that should end.

Union leaders, while open to discussing health care expenses, rejected the idea of additional concessions. Lamont should warn them they could face a voter rebellion, and potentially an end of collective bargaining for benefits, if they are not open to reasonable accommodations.

Lamont would place his state on a “debt diet,” which won’t please pork hungry legislators but is a prudent action.

Not so thrilling is Lamont’s plan to expand the 6.35 percent sales tax to everything now exempted, such as dry cleaning, a haircut, veterinary services, interior design and, yes, newspapers, just to name a few.

While some extension of the sales tax makes sense — digital downloads, perhaps, and some professional services — the bureaucracy required for the expansion Lamont plans, and its potentially deleterious economic impact, appear self-defeating. If Lamont can justify the need for more revenues, a slight uptick in the sales tax rate makes more sense.

As difficult as coming up with a balanced budget plan may have been, it will pale next to the political fights to come. If the administration is not good at those, little of what it unveiled Wednesday will matter.