In 2014, The Day published a series of stories that revealed the severity of the pension crisis facing Connecticut. For decades, the state’s elected leaders had negotiated employment contracts with state employees, committing Connecticut taxpayers to providing generous pensions and health benefits, but had not set aside the benefits. funds to pay these obligations.
The result was a grossly underfunded public pension system that would force the legislature to provide increasingly large payments to meet these obligations, crowding out spending on other programs.
The New Haven-based advocacy group, Connecticut Voices for Kids, for example, reports that 20 years ago about 40% of state spending was on education, health care and social programs that support children, a figure that is now closer to 30 %.
Almost seven years later, we can report that the situation has improved.
Gov. Dannel P. Malloy, in office from 2011 to early 2019, urged lawmakers to start setting aside funding that would be needed to catch up. And while this catch-up plan has been effectively refinanced over the last few Malloy years to keep payments manageable, thus extending the time frame for the pension fund to return to solvency, this solvency has at least a target date of around 2050, according to actuaries.
Another step towards the light at the end of this long tunnel came this year when state treasurer Shawn Wooden deposited $ 1.25 billion into the state employees’ pension fund, a payment that in addition to the $ 2.6 billion in actuarial payments required in the state. and teachers ‘pension funds (the teachers’ pension system is also underfunded).
This one-time payment frees up about $ 110 million per year that would otherwise have to come at the expense of other programs or through a tax increase.
After evaluating the numbers, Controller Kevin Lembo called him “A real relief that will both save future generations a legacy of retirement debt and provide short-term budget relief for taxpayers. “
Some smart political movements have brought Connecticut to this point. In 2017, a “volatility cap”, a concept devised by Senator John Fonfara, D-Hartford, and supported by the Co-Chairs of Appropriations – Sen. Cathy Osten, D-Sprague and Sen. Paul Formica, R-East Lyme – was approved to prevent the legislature from spending increased tax revenue related to capital gains and other investment income. Such a peak has been observed over the past year.
Lembo, meanwhile, pushed the state to build up its budget surplus, commonly referred to as the “rainy day fund”.
Thanks to rising markets and fiscal discipline imposed by the volatility cap, the Rainy Day Fund has reached its legal maximum of 15% of annual General Fund expenditure, or about $ 3 billion.
Any surplus beyond this amount must be used, according to the system put in place in 2017, to meet the underfunded pension obligations, resulting in the $ 1.25 billion that Wood deposited in the pension fund of the state employees.
Current Office of Fiscal Analysis projections estimate that by mid-2023, Connecticut may be ready to make another $ 2.3 billion payment to the pension fund, on top of its normal actuarial liability.
Does that mean Connecticut’s retirement issues are behind? Barely. the most recent report from the Office of Policy and Management, released last November, found the liability of the state employee pension system to be $ 36 billion, of which $ 22.3 billion was unfunded. About 88% of the money the government sets aside each year goes to pay off this unfunded liability.
Most of this responsibility – 73% – relates to already retired government employees. Newer contracts offered longer lasting pension benefits and higher employee contributions to pay them. Thus, after a peak around 2025, the payments necessary for catching up will gradually decrease.
The lesson is that voters should reward elected leaders who are ready to stay the course and build a stable fiscal future for Connecticut. When The Day released its in-depth series in 2014, solving the problem seemed impossible. Now, that just seems intimidating. It is progress in a way.
The Day’s Editorial Board meets regularly with political, business and community leaders and meets weekly to formulate editorial perspectives. It is made up of President and Editor Tim Dwyer, Editorial Page Editor Paul Choiniere, Editor-in-Chief Izaskun E. Larrañeta, Editor Erica Moser and retired Associate Editor. Lisa McGinley. However, only the editor and the editor of the editorial page are responsible for the preparation of editorial notices. The board operates independently of the Day newsroom.