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Massive pension liabilities were Malloy’s ‘White Whale’

December 26, 2018

Editor’s note: This is an excerpt from a longer story about Malloy’s handling of Connecticut’s fiscal crisis.

It was Gov. Dannel P. Malloy’s personal white whale.

Two line items, buried amongst hundreds of others, rose from the pages of the state budget to confound his plans year after year: required contributions to state employees’ and teachers’ pensions.

Cash-starved after seven decades of inadequate funding, they exploded during Malloy’s tenure, stealing billions of dollars the governor would have preferred to spend on roads, schools, transportation — and even tax rebates.

This behemoth of debt, a monster seven decades in the making, forced Malloy to impose two major tax hikes during his eight years.

But if Malloy couldn’t slay the monster, he made progress in taming it.

Despite being saddled from Day One with a huge deficit, an empty reserve, and a weak recovery from the last recession, he became the first Connecticut governor in modern history to make all required pension contributions — breaking a longstanding practice of leaving a bill for Connecticut’s children someday to cover.

Malloy also secured two major concessions packages from state employee unions, deals that reduced long-term pension liabilities and increased health care cost-sharing dramatically — but not without a cost. To get those changes, the governor locked Connecticut into an additional decade of having to provide retirement benefits that some legislators argue simply are unaffordable.

And while he may not be remembered fondly for the tax increases, Malloy says the truth of his success lies in other numbers.

“I measure myself by what we accomplished, not how well it’s known or understood or appreciated,” Malloy, who has two weeks left on the job, told the CT Mirror during an interview last week.

Rising pension costs

The Democratic governor’s greatest nemesis arguably wasn’t the Republican Party, or even the sluggish economy. It was the state’s obligation to its retired workers.

In the last budget approved by Gov. M. Jodi Rell, covering the 2010-11 fiscal year, required contributions to state employees’ and teachers’ pensions amounted to $1.2 billion, or just over 6 percent of the General Fund.

By Malloy’s last year they had more than doubled, approaching $2.5 billion and devouring 13 percent of the budget. Put another way, every single year the governor had to find — on average — another $164 million to feed this two-headed fiscal beast.

Despite those costs, Malloy made the full required contribution every year, unlike any other governor in modern times.

He and the General Assembly refinanced the state employee pension obligations in 2017, with approval from the unions, effectively pushing back some payments until after 2032 and sharply reducing required payments in some years before then. Still, Malloy was the first governor in decades not to bill Connecticut’s children for the retirement benefits promised to today’s public-sector workers — a fact he plays down.

“I told you what I was going to do,” he said, referring to a pledge in his 2010 campaign not to skirt pension obligations.

Fiscal time bombs

His critics disagree, especially when it came to Malloy’s contention that the tax increases were a last resort, necessary to balance a budget that included meeting the pension obligations and solving other problems he inherited from former Gov. M. Jodi Rell.

“Connecticut didn’t buy that answer then, and still doesn’t now,” said Republican political strategist Liz Kurantowicz. “It’s too bad we don’t have lemon law for politicians.”

But the Democratic governor said what his critics couldn’t see, or wouldn’t be honest about, were the magnitude of problems stacked against him.

The ticking fiscal time bombs that were the pension funds were the biggest problem, but far from the only one.

Those old issues included a $900 million operating debt that Malloy’s budgets had to pay off; a rainy-day fund that Rell had emptied; sluggish job gains that continued; and highways and other transportation infrastructure needing ever more attention.

Government cuts

Malloy said he had to make tough choices as pension costs rose. One of those was to shrink government. During his tenure, Malloy cut Executive Branch staffing by more than 10 percent, shaving off more than 2,500 jobs.

Malloy’s labor concessions packages froze wages, increased worker’s share of health care costs, and reduced pension benefits — often putting him at odds with a vital part of his political base.

“I fought with the unions, I fought with the teachers,” he said, adding he was “greatly resented” for the first round of concessions he demanded. “I fought with everybody.”

Republicans said the sacrifices by state employees weren’t nearly enough, and they say that shortcoming led to the tax increases, which hampered the state’s growth.

Roy Occhiogrosso, the political strategist who advised Malloy’s 2010 and 2014 campaigns and served in his administration, said Malloy fearlessly waded into issues that many politicians — in some cases for generations — ignored.

“When the Republicans say ‘Dan Malloy wrecked the economy,’ it is such a ridiculous thing to say. In so many ways he put the state in a position where future growth is possible.”

Occhiogrosso predicts Malloy’s legacy will be viewed increasingly favorably over time, particularly when future generations don’t receive a bill for the billions of dollars of present-day pension costs.

Malloy is not so sure how his image might change over time, but insists he’s at peace nonetheless.

“People don’t like me, necessarily, but they know I work hard,” he said. “That’s enough. That’s enough.”

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