Reports surfaced Monday about a tentative deal between Gov. Dannel Malloy and the state employee labor unions to achieve $1.5 billion in concessions over the next two years and extend the state employee contract to 2027.
According to reports, the concession deal would include a three year wage freeze and increased contributions toward pensions and healthcare as well as layoff protections.
Malloy has said previously that without union concessions he would be forced to lay off 4.200 workers.
However, a five year contract extension will mean Connecticut will be saddled with the union deal, negotiated by Gov. John Rowland, for as long as most people have mortgages.
The extension of the contract could be a sticking point in the legislature because it will prevent future governors from renegotiating the terms of the 1997 agreement. Those terms include pensions and health benefits, two of the major factors driving the deficits.
Connecticut’s pension fund is only 36 percent funded due to years of underfunding and overpromising. The yearly cost of those unfunded liabilities has grown to $1.6 billion. That figure will grow to $2.2 billion over the next five years under a new payment deal made separately by Malloy and approved by lawmakers in January.
Under the current system, Malloy needs the permission of unions to make substantive changes. However, most states use a more flexible system with benefits set by law rather than bargaining for them.
During this legislative session a number of bills were introduced to change the way Connecticut sets retirement benefits and union contracts. Republicans proposed and backed a bills that would require state employee retirement benefits to be set in statute rather than through collective bargaining and to require a legislative vote on all employee contracts.
Connecticut is one of the few states that does not set retirement benefits through state statue. Lawmakers also proposed bills to switch new employees to 401(k) style plans. Connecticut also does not require the legislature to vote on contracts. Instead the contract is "deemed approved" if it is not voted on within 30 days.
While the contract is in place, union leaders can choose to make changes as long the membership approves with a vote.
But union leadership has protested vehemently against any change in the way retirement benefits are set and have publicly stated that any changes made through a legislative vote would be unconstitutional because it would unilaterally change the terms of the contract.
The concession deal may be good news for the governor and state Democrats who were counting on the concessions to balance their budgets. Republicans, on the other hand, had called for even more in union concessions.
However, past concession deals have not brought in the savings touted by both union leadership and the governor.
In 2011, Malloy faced a $3 billion budget deficit. In his effort to close the budget hole he sought $1.6 billion in union concessions and threatened 4,400 layoffs.
The unions agreed to a two-year wage freeze and some healthcare and pension concessions. In exchange they received an extension on the existing contract with the state pushing the expiration date to 2022.
The remainder of the budget hole was filled by a $1.5 billion tax increase on state residents.
The deal with the state unions was expected to save the state $4.8 billion over twenty years but the Office of Fiscal Analysis said the confirmed savings would only amount to $1.7 billion. Essentially, the $4.8 billion in estimated savings relied on counting some figures twice.
According to OFA, “At least a portion of the savings shortfall can be attributed to that fact that interrelated provisions were mutually exclusive.”
Malloy raised taxes again in 2015 by $2 billion to fill another budget deficit but did not seek union concessions at that time.
The cycle of deficits coupled with tax increases and underwhelming union concessions led the Hartford Courant to make a plea to union membership to give back to Connecticut.
“Yes, six years ago there were givebacks. Frankly, those givebacks weren't much,” they wrote. “They included a new $35 co-pay on emergency room visits (a bargain compared to co-pays in the private sector) and no wage increase for two years followed by three years of 3 percent increases. Median income in the state didn't grow by that much in those five years.”
Layoff protections could also hurt the state’s ability to consolidate services or use private nonprofit providers in the future.
The nonpartisan think tank Connecticut Institute for the 21st Century outlined the potential for $2 billion in savings over the next five years, most of which would come from the state using private nonprofit organizations to provide social services.
Contracting with private providers means the state does not have to pay for the long-term employee costs such as pensions and healthcare of state workers.
The concession deal has not yet been drawn up by official negotiators and will still have to be voted on by union rank and file.
In a somewhat telling aside, a $4 million concession deal reached between the city of Hartford, which faces bankruptcy, and its employee union was struck down by union members.
The “overwhelming” defeat, leaves Mayor Luke Bronin scrambling to close a $65 million budget deficit next year. Bronin relied on $15 million in union concessions to balance the current budget. Now the city appears to need a bail out from the state.
Unfortunately, Connecticut is in much the same boat but with no one to bail it out.