Legislative Analysts Say Malloy Won’t Achieve Pension Savings
(Updated 5:15 p.m.) The legislature’s nonpartisan Office of Fiscal Analysis concluded Friday that the state employee pension concession deal will fall about $3.1 billion short of the projected $4.8 billion in savings over the next 20 years.
Republican lawmakers ,who requested the report, said it’s just more proof that Gov. Dannel P. Malloy’s administration is unlikely to achieve the $1.6 billion in union concessions over the next two years in order to balance the budget. That means the deficit will likely grow and he won’t be able to keep his campaign pledge to move to Generally Accepted Accounting Principles.
Office of Policy and Management Secretary Ben Barnes said OFA’s report doesn’t prove anything because with all due respect to OFA, they’re not actuaries.
“The House minority should refer questions about the actuarial funding of the pension plan to actuaries,” Barnes said Friday. “We have relied on the plan’s actuaries and we are confident in their findings, which show billions of dollars in long-term savings to taxpayers as a result of plan changes negotiated by the Administration last summer.”
But the report comes on the heels of Malloy’s announcement Monday that he wants to dramatically change how pensions are funded.
If the revised plan Malloy announced Monday before flying to Davos, Switzerland is adopted by the General Assembly, then OFA‘s numbers change. If the state decides to contribute more on an annual basis to the pension fund then those savings improve and the shortfall is only around $1.7 billion, according to the two OFA reports requested by Republican lawmakers.
“If we compare this revised payment schedule to a baseline schedule included in supplemental actuarial information provided after the SEBAC negotiations, we arrive at a 20-year savings of $3.6 billion,” OFA said in its report.
The projected savings to the state employee pension system under concession deal was estimated to save $4.8 billion over 20 years, but on Monday Malloy proposed increasing the amount the state contributes on an annual basis by about $125 million in the first year.
Malloy said the goal was to improve the funding level of the pension fund to 80 percent by 2025, and 100 percent by 2032. Currently the pension system is funded at about 48 percent.
Sen. Minority Leader John McKinney, who requested one of the reports from OFA, said it shows that a promise on one part of Malloy’s $1.6 billion concession deal falls short by $3.1 billion. He said if you look at the report and consider the changes Malloy announced on Monday then “I don’t think you’re adding apples-to-apples.”
McKinney said the $4.8 billion in savings were savings he claimed were concessions by state employees. The proposal he made on Monday will require the use of taxpayer dollars, which means services will be cut or revenue will need to be raised in order to pay for it.
“I have no doubt that putting in more money above and beyond your annually require contribution can help achieve savings over the long term,” McKinney said Friday during a visit to the press room. “Underfunding costs you more money in the long run, overfunding can save you money in the long run.”
The difference according to McKinney is that Malloy said the savings were going to come from concessions from state employees, “not from more spending from the people in the state of Connecticut.”
McKinney said he’s supportive of increasing the annually required contribution, but he’s not in favor of allowing it to be outside the spending cap.
In addition to increasing the contribution to the pension fund Monday, Malloy suggested it fall outside the spending cap.
“Given the budget deficits we have, given the spending increasing the Democrats and the governor gave us in their budget, we should live within the spending cap,” McKinney said. “If we deem it important for the long term fiscal health of our state to spend money into our pension fund above and beyond what’s annually required then we need to cut spending in other areas to do so.”
House Minority Leader Lawrence Cafero, who requested a similar report from OFA, said it proves that the union concession deal and the purported savings are “fiction.“
“Just as in the other areas of the SEBAC deal concerning health care and other built-in savings, the pension fund savings are just one-third of what was budgeted,” Cafero said. “This is just more bad news.”
But the administration is sticking by its numbers and is vowing the end the year in the black.
“The Republicans can ask these questions any way they want, and they can use all sorts of interesting theatrics in the process, but the answer will always be the same thing: we are confident in OPM’s numbers and the calculations provided by the State’s pension plan actuary,” Barnes said.
The unions seems to agree with the Malloy administration and believe the state will achieve the stated savings.
“We reached an agreement in good faith with this administration that is providing significant savings to the taxpayer while ensuring the continuation of public services,” Larry Dorman, spokesman for AFSCME Council 4, said.
Dorman said the Republican letter was a “thinly veiled attempt to turn public anger on state employees rather than come up with real solution to get this economy moving again.”