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New Connecticut debt report offers sobering look at state finances

Connecticut Comptroller Sean Scanlon outlines pension reforms with members of a working group and others on May 3, 2023.
Mark Pazniokas
CT Mirror
Connecticut Comptroller Sean Scanlon outlines pension reforms with members of a working group and others on May 3, 2023.

While some state officials want to revisit the “fiscal guardrails” that dramatically improved Connecticut’s short-term budget outlook in recent years, a new policy report is reminding lawmakers of the problems that still leave state government under significant strain for decades to come.

An analysis from Pew Charitable Trusts showed Connecticut’s health care program for retired state workers, according to one metric, was the fifth-worst funded among all states in 2019.

And even while Connecticut has made strides to improve its fiscal health in recent years, it still has enough assets to cover just 10% of its long-term expenses — and has $20 billion in unfunded obligations.

Only 10 states in 2019 contributed enough to their retiree health care programs to cover all costs and ensure the long-term debt did not grow. Connecticut was not one of them.

That doesn’t mean they can’t fund benefits for present-day retirees, Pew analysts wrote. “But it does mean that these states are pushing costs into the future — when policymakers will eventually have to choose between reducing state spending on other priorities in order to fund retiree health benefits or reducing the benefits.”

And while Connecticut has taken strides to reduce its long-term debt in this area since 2019, it hasn’t increased the rates at which it saves for the program — which means debt could begin to grow again in the future.

For decades, Connecticut saved nothing for the health coverage it offers most retired state employees. Government simply budgeted funds annually to cover the cost, which typically swelled much faster than the rate of inflation.

That began to change in 2009 when Gov. M. Jodi Rell reached a concessions deal with unions that required most new workers to contribute toward their retirement health care.

Gov. Dannel P. Malloy expanded that requirement to include most workers in a 2011 concessions package, which also required the state to begin matching worker contributions a few years later. And a 2017 concessions package tightened the scope of that retirement coverage.

In 2019, Connecticut had enough assets to fund just 5% of the long-term obligations of its retiree health care program.

To offer perspective, Connecticut also saved poorly for its pension funds between 1939 and 2010 and still carries more pension debt, per capita, than most other states.

Its pension funds for state employees and for teachers are 46% and 57% funded, respectively.

Pew analysts looked at all states’ retiree health care obligations and weighed them as a percentage of their revenues — excluding federal and other inter-governmental grants.

Connecticut’s debt was exceeded only by Alaska, New Jersey, Illinois and Delaware.

Connecticut lopped $4 billion off its retiree health care debt during Gov. Ned Lamont’s first term.

Most of that improvement involved savings the state comptroller’s office negotiated with Connecticut’s Medicare Advantage plan vendor. But it didn’t involve the state increasing its annual savings effort to offset program debt.

Lamont, who inherited all of these retirement program debts, has pressed lawmakers over the past year to stick with a series of budget controls enacted by the 2017 legislature with bipartisan support.

These include more stringent caps on borrowing and spending, as well as two savings programs that restrict lawmakers’ abilities to spend certain revenues, particularly volatile quarterly income and business tax receipts.

Since 2018, these budget controls teamed with resurgent financial markets and — at times — high inflation to fill the state’s coffers.

Connecticut has amassed a record-setting $3.3 billion rainy day fund and used another $5.8 billion in surpluses to pay down extra pension debt. And the current fiscal year is on pace to close June 30 about $2.9 billion in the black — which would be the second-largest surplus in state history.

Many of Lamont’s fellow Democrats in the legislature point to these flush coffers and say Connecticut must spend more to mitigate the pains the coronavirus pandemic and inflation have inflicted on education, social services, town aid and other core needs.

The $51 billion budget the Appropriations Committee recommended for the next two-year cycle would be complemented by more than $260 million of this year’s budget surplus carried into the next biennium to bolster public colleges and universities, social services and other programs.

And the tax-writing Finance Committee endorsed a revenue plan that would intercept $400 million out of any revenue surges in each of the next two years — before they arrive in the General Fund and become subject to spending cap limits — and send them to municipalities to preserve local services and keep property taxes down.

While Connecticut has made greater strides in recent years, the administration counters, it still owes close to $88 billion between its retirement health care, pension and bonded debt combined — problems created over decades, most prior to 2010.

Data from the Connecticut Office of Policy and Management
Gabby DeBenedictis
CT Mirror
Data from the Connecticut Office of Policy and Management

Chris Collibee, Lamont’s budget spokesman, noted the recent progress in cutting retiree health care debt. But he added that this liability “did not accumulate overnight.”

Collibee added that “if we are going to continue the recent progress to pay down the OPEB and other liabilities, adhering to the fiscal guardrails is crucial. These guardrails have been essential to reducing our unfunded liabilities, saving taxpayers billions of dollars into the future.”

State Comptroller Sean Scanlon echoed the governor’s concerns, saying Connecticut can preserve its competitive job benefits in the future by keeping its fiscal house in order.

“That is made easier by the fiscal guard rails being in place,” he said.

But the spokeswoman for the State Employees Bargaining Agent Coalition, Drew Stoner, said those who use the fiscal guardrails as an excuse to ignore existing crises in education, human services and other core programs “are missing a critical point.”

Underfunding of retirement benefit programs and accumulation of debt did stem from decades of fiscal mismanagement by many legislatures, she said. But that also means it cannot be fixed overnight by pouring all of the current budget surplus into debt reduction.

“Connecticut must pass a moral budget that invests in our communities mitigates inequity and addresses the crisis at hand,” Stoner said. “These investments are proven to improve our economy’s health and reduce our future increased reliance on public services, compared to austerity approaches like adherence to a rigid spending cap.”

Launched in 2010, The Connecticut Mirror specializes in in-depth news and reporting on public policy, government and politics. CT Mirror is nonprofit, non-partisan, and digital only.