Connecticut union leaders signed off on pension underfunding each time it happened, according to the state's top union official and expert testimony before the Spending Cap Commission last month.
At the Sept. 26 commission meeting, CT AFL-CIO President Lori Pelletier said union leaders agreed to underfund the state employee pension in exchange for better benefits for workers, even though they knew it was “not a good idea.”
Pelletier said Connecticut is now “left holding that basket.”
Lawmakers charged the commission with proposing definitions for the terms in the constitutional spending cap, which 80 percent of voters approved in 1992. Despite the overwhelming support, lawmakers have yet to define the terms that would put the cap into effect.
The commission will hold public hearings over the next two months. One of the current issues of contention is whether pension contributions should be excluded from the cap. The constitutional amendment provides that payments for "bonds, notes or other evidences of indebtedness" are excluded from the cap. The commission has been considering whether payments for past underfunding of the pension should be treated like debt service or compensation.
The first public hearing is in Hartford, Wednesday, Oct. 5, from 4 to 7 p.m. The next hearing is in Bridgeport on Oct. 13. Details about all the hearings will be updated here.
Holly Williams of the Office of Fiscal Analysis testified that state employee pensions are currently $14.9 billion unfunded. “Any changes to the pension fund and the funding thereof need to be agreed to by the state and the unions,” she said.
Williams said the state's agreement with the union requires it each year to pay the amount determined by actuaries. “Years when the state has not paid 100 percent of that there has been a contractual agreement between the state and unions to make a deferral,” Williams said.
Those contractual agreements came under Gov.John G. Rowland, when he and union leaders reached agreements in 1995 and 1997 to defer pension payments in order to balance the budget. The agreements were approved by the legislature at the time.
The pension debt has grown because investment returns fell short of the state's high expectations while payments to retirees exceeded expectations. The state’s contribution to the pension fund has grown accordingly. Gov. Dannel Malloy has been contributing the required amount to the pension, most recently with $1.5 billion per year, but payments will have to continue to grow to match the requirement.
In order to deal with lowered tax revenue, a growing deficit and long-term debts, Malloy laid off 2,500 state employees in 2016. Union leaders, including Pelletier, have called on Malloy and the legislature to raise Connecticut’s taxes for the third time in order to meet these challenges. Malloy called for union concessions to avoid the layoffs.