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Malloy doth praise himself too much, methinks

January 6, 2019

Outgoing Gov. Dannel P. Malloy has been busy in his waning days. As ever, he has been polishing his record and boasting of his accomplishments — on an epic scale. His “Malloy-Wyman Record” is a massive 283-page document, providing a distorted and inaccurate account, certainly concerning the enormous expenditures devoted to the care and feeding of the state workforce.

For example, Malloy claims credit for imposing painful wage freezes for five of his eight years in office, conveniently skipping the increases he negotiated for each of the upcoming two fiscal years. He owns these increases. They will add about a half billion dollars to future budgets. Moreover, a raise every other year is certainly not a hardship, especially when they push state worker pay even farther above wages in most other states and above the level of pay in much of Connecticut’s private sector.

Since pay is the base upon which most benefits are calculated, the benefits picture isn’t pretty either, as even “The Malloy-Wyman Record” concedes: “Connecticut has two of the worst funded pension systems in the country.” Note the use of the present tense, “has” – even now, after eight years of Malloy’s efforts.

Having essentially admitted failure, Malloy makes excuses, employing a half-truth that the underfunding results from years of insufficient contributions by the state to the pension funds before he took office. He states proudly that he paid the required amount.

Past inadequate state funding did contribute to the problem, but so did the over-generousness of the benefits.

So what results did Malloy achieve? Did he chip away at those unfunded liabilities?

No. Things got much worse. The unfunded liabilities of both the state employee pension fund (SERS) and the teacher pension fund (TRS) increased dramatically, SERS from about 21 billion last June, and TRS from about 13 billion. Malloy owns this backsliding.

What happened? Malloy converted active workers into retirees on a huge scale without first scaling back their over-generous pension benefits or requiring meaningful employee contributions to the pension funds before retirement. Retirees now outnumber active state employees 51,000 to 49,000, according to last June’s SERS valuation report. Before Malloy, retirees numbered only 42,000 compared to 50,000 active workers.

Consequently, aggregate retirement benefits have soared from 1.9 billion last fiscal year.

Malloy doesn’t talk much about the over-generousness of benefits. This is willful negligence. Before his first inauguration, he received a stunning report on state employee compensation from the Commission on Enhancing Agency Outcomes (CEAO), a precursor of the current Commission on Fiscal Stability and Economic Growth.

The CEAO report showed Connecticut state workers with much higher pay and benefits than its private sector workers, deviating markedly from the national norm of public employees receiving lower pay but higher benefits. Average state employee pay was about 59,000 in the private sector. The report clocked in state employee benefits at about 106,000 versus private sector benefits of 74,000.  Malloy knew all this.

Using the same data sources today, state employee pay, benefits and total compensation still exceed those in the private sector – even before the next two years’ 3.5 percent wage increases. Other studies have found the same, including that Connecticut state employees fare better than those in most other states do.

Malloy did little to rein in the excesses. Indeed, in April 2014, Malloy told a rally of union workers, “I am your servant.” Indeed, he’s been in union service, as much public service.

Finally, during the SEBAC 2017 bargaining process last year, Malloy’s seventh year in office, he decided to become a reformer and negotiated with unions for a less-costly pension plan for new hires. It delivers lower benefits upon retirement and requires contributions of at least 5 percent of wages to pay the liabilities that accumulated under Malloy for the over-generous benefits of older workers, many of whom weren’t required to make any pension fund contributions until last fiscal year and only 2 percent thereafter.

These SEBAC 2017 reforms are simply too little too late. Had they been instituted six years earlier under SEBAC 2011, they would have generated substantial contributions, significantly slowing the growth in unfunded pension liabilities. Instead, Malloy kicked the can down the road, primarily by re-amortizing the state’s required pension contributions — that is, lowering them and stretching them out over a longer time period.

Yet the state may be running out of time. This year the legislature commissioned a stress test of the viability of its pension funds. The report warned that the “budget is exposed to potentially unaffordable spikes in required pension contributions in scenarios where investment returns fall short of expectations.”

Ominously, the stock market has declined 10 percent since the date of the analysis.

Nobody would say negotiating with union bosses for reduced pay and benefits is easy, but no one should be fooled by The Malloy-Wyman Record into believing that Malloy made even a creditable try. Now, it falls to Malloy’s successor to try to rescue a truly dire situation.

Red Jahncke (Twitter: @RedJahncke) is president of The Townsend Group Intl, LLC, a Connecticut business consulting firm.

 

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