Pension promises are killing Connecticut’s budget

Despite a “Booming” economy, tax revenue is down. Connecticut is reaching into its emergency fund during the good times. What’s going to happen when the recession actually hits?

The Wall Street Journal reports:

Connecticut is once again coming up short on cash, and its rainy-day fund is already strained.

About halfway into the budget year, sales and income tax revenues have come in about $208 million under projections. That comes even after lawmakers enacted deep spending cuts, raised fees on motor-vehicle registrations and required teachers to contribute more to their pensions to pass a two-year budget in a bruising process that took 10 months.

Shortfalls have “caused us to tap our rainy-day fund, our budget-reserve funds,” Paul Potamianos, the state’s executive budget officer, said on a conference call. “This is a problem for us because our reserves are not growing,” even though the nation is not in a recession, he said.

The state’s reserves of $213 million currently comprise about 1.1% of expenditures. That compares with a forecasted median of 5.1% around the U.S. this fiscal year, according to a report released Thursday by the National Association of State Budget Officers, or Nasbo.

To close the gap, the governor has asked state lawmakers to cut spending and raise taxes. Liberals might call these proposed tax increases “regressive” since they more severely impact low-income families.

You see, the governor has proposed increases on sales taxes and cigarettes. Smoking is more prevalent among the lower-educated and those living below the poverty line, according to the CDC. And sales taxes take a higher portion of a low-income family’s total income than a rich family’s income.


One major problem is that costs associated with the teacher’s pension fund have sky-rocketed. For the last decade, Connecticut’s teachers have gotten approximately $47,000 annually as a part of their pension. That came at a cost of about 6% of their salary per year. Compare this to Massachusettes, whose teachers get about eight grand less ($39,000), but at a higher cost of 11% of their salary that they must contribute.

But now, for teachers who retired beginning in 2016, that pension benefit increased to over $59,000 – which is a huge increase of about 25%.

It’s no wonder that Connecticut’s pension system is the worst in the country.

The governor tried reforming the program several different ways, such as by having the local municipalities shoulder some of the burden. All attempts were squashed by the legislature, which is undoubtedly under the thumb of the teacher’s union.


Connecticut also uses an inflated rate of return — 6.99% — to hide how bad the situation really is. When was the last time you earned 7% annually on anything?

Problem is, the funny math can’t prevent reality from intruding. At this point, half of the state’s budget is consumed by making payouts to teachers’ pensions, healthcare for retirees, and interest on their debt:

But the years of underfunding those pension plans is catching up with Connecticut and neither lawmakers nor taxpayers can hide from the costs much longer.

Connecticut’s pensions are part of the state’s “fixed costs” of pensions, retiree healthcare and debt service, which now comprise over 50 percent of the state budget, crowding out other state services or forcing tax increases to continue funding those services.

Connecticut has already endured two large tax increases in 2011 and 2015 but, according to Office of Policy and Management Secretary Benjamin Barnes, the increased revenue from those tax increases has not been enough to keep up with the rising pension costs.

The chickens are coming home to roost. The deficits will accelerate during the next recession. The state government will be forced to break its promises to somebody. Will it be the teachers, or the other public services it funds?

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