Malloy Administration Claims Debt Reduction, But Not Everyone Buys It
(Updated 5:30 p.m.) Gov. Dannel P. Malloy, who has yet to say whether he will seek re-election, touted a report by his budget office that shows the state’s long-term liabilities have been reduced over the past three years by about $11.6 billion. That’s at the same time as state is contributing more money to state employee pensions, which are underfunded, and bonded debt is increasing.
One Republican lawmaker, who is running for governor, called it a work of “fiction” and the head of the Republican Party accused Malloy of using his taxpayer-funded office to campaign.
The Office of Policy and Management report released Thursday prior to the first Bond Commission meeting of 2014 shows that state’s overall debt since 2011 has been reduced about 15 percent from $76.2 billion to $64.4 billion under Malloy’s administration. All of those savings come from the restructuring of retiree health benefits as part of the labor agreement the governor reached with state employee unions back in 2011.
However, Sen. John McKinney, R-Fairfield, is quick to point out that the state doesn’t have to contribute to those retiree benefits until 2017.
“The valuation assumes an annual payment of $130 million by the state beginning in 2017, but the Malloy administration has yet to budget for that payment,” McKinney pointed out in a press release.
Bonded debt, which Republicans have criticized, has increased from $19.8 billion to $20.9 billion since 2011.
“I watch what gets reported and what gets said and I wanted to make sure everyone understands how much progress has been made in the state of Connecticut,” Malloy said after Thursday’s Bond Commission meeting.
Malloy said bonded debt is a portion of what the state is doing to address its long-term liabilities, but it’s not all of it. He said he understands that Republicans are happy to point out how big the state’s long-term liabilities are, but “I’m more than happy to point out how much it shrunk during the three years I’ve been governor.”
Sen. Scott Frantz, R-Greenwich, told Malloy during the Bond Commission meeting that he felt the governor’s co-mingling “bonded debt” and “long-term obligations” was confusing. Bonded debt is used for infrastructure and other capital projects, while the state’s unfunded pension liability is a different type of long-term liability.
He said the state needs to be cognizant of how much additional debt it’s putting on the books and by confusing the two issues the state may lose focus.
Malloy said he sees that the state gets something for its bonded debt, such as schools and roads.
“These are concrete investments that we make, not in an individual or the success of an individual, but in a state and the success of the state,” Malloy said unapologetically.
He said Republican lawmakers for years failed to criticize Republican administrations for agreeing to delaying payments to the state employee retirement fund.
“We need to put what’s happening in context,” Malloy said. “When it is frequently pointed to that one type of debt is increasing, while overall debt has decreased by 15 percent, I think it’s important to put in context. Otherwise, what will happen in our state is the bad decision making that’s happened before which leads to underinvestment in our infrastructure.”
But not everyone agreed.
“The Malloy administration’s latest report on state debt is a complete work of fiction,” Sen. Minority Leader John McKinney, R-Fairfield, said Thursday. “While I’m happy to see that my criticism of the governor’s reckless use of state borrowing has finally gotten his attention, I’m frustrated by his reaction.”
McKinney and other Republican lawmakers have criticized the amount of money the Malloy administration has put on the state’s credit card. While the governor didn’t exceed his self-imposed $1.8 billion bonding cap in 2013, Republicans were quick to point out that $1.79 billion is the most money the state has ever bonded in a single year.
The biggest piece of that debt or about 27 percent helps fund school construction projects. That’s followed by transportation projects, which are funded with special tax obligation bonds, and the debt associated with the Teachers’ Retirement Fund, which accounts for about 13 percent of the state’s total outstanding bonded debt.
School construction combined with the teachers’ retirement debt make up a combined 40 percent of total state debt.
But the administration makes no apologies for borrowing to fund capital projects. The decision to borrow to make the teachers’ retirement fund solvent was done years before Malloy was elected governor.
“We are tackling our long-term debt in a responsible way, while still making the bold, necessary investments needed to help create jobs and grow our economy,” Malloy said in a press release.
The report states that spending 11 percent of the budget in 2018 on bonded debt “remains affordable to the state, given the importance to our economy and quality of life that our bonding investments support.”
The report also takes credit for ending past practices of past administrations and the legislature, such as delaying payments to the state employee retirement fund and refinancing the 2009 Economic Recovery Notes, which now won’t expire until 2018. The delay in repayment of the Economic Recovery Notes is expected to add $45 million in interest to the payments, according to Connecticut Voices for Children.
At the same time as the report points out the reduction in retirement benefits, it admits that the story of Connecticut’s long-term liabilities is complicated.
The report points out that in 2012 the state made the largest ever annual contribution to the State Employee Retirement System. Despite this payment the fund still shows an unfunded liability of $1.2 billion, an increase of 11 percent. That’s because the state changed some of the underlying funding assumptions. Instead of estimating the pension fund would receive an 8.25 percent return of investment from the market, it lowered it to 8 percent.
“Based on actuarial projections, the fund should be fully funded by 2033, at which point the annual costs should drop from the $1.2 billion we must pay this year down to the normal cost alone, or about $300 million,” the report states.
Republican Party Chairman Jerry Labriola said this is just another moment where Malloy is not being honest with Connecticut taxpayers. The longer Malloy waits to announce whether he’s seeking another term, the more it makes things like this look political.
“Dan Malloy refuses to be straightforward with Connecticut voters about his plan to seek a second term so that he can continue to circumvent election law and use his taxpayer-funded office to launch his campaign,” Labriola said.
Malloy said he requested the report because of questions about the state’s long-term debt by Republicans like Frantz.
“It very much related to the first comment by a Republican at the meeting today,” Malloy said referring to Frantz. “How much additional bonded debt do we take on?”
Malloy said he needed the report first to make that determination. He said he hasn’t decided how much money the state should bond yet in 2014, but he canceled the Bond Commission meeting scheduled for later in the month.