Report: State Using Retiree Benefits To Pay The Bills
(Updated 3:04 p.m.) A meeting of the Finance, Revenue, and Bonding Committee Friday provided lawmakers with a forum to discuss the state’s current fiscal outlook, taxes, and economic policies. During the meeting lawmakers on both sides of the aisle expressed concern about the state’s common cash pool, but were unaware of an Office of Fiscal Analysis report requested by House Minority Lawrence Cafero that showed about $49.6 million bookmarked for state employee health benefits was being used to pay the bills.
The report by Holly Williams of the Office of Fiscal Analysis said both the State Employee Bargaining Agent Coalition agreements of 2009 and 2011 require both employees and the state to make contributions to the “other post employment benefit,” also known as the OPEB fund, which pays retiree health benefits. Those funds, according to the report, are currently part of the state’s common cash pool, which is used to pay the state’s bills. The story on the report was first broken by the CT Mirror.
A revised 2011 SEBAC agreement establishes an irrevocable trust for the fund. But the money, according to state Treasurer Denise Nappier, is still in the common cash pool.
However, the chief SEBAC negotiator is not as concerned as Republican lawmakers are about the situation, since he doesn’t believe it violates the agreement.
“The OFA response to Rep. Cafero’s inquiry confirms that the revised 2011 SEBAC agreement is accomplishing its goal of providing significant savings to Connecticut taxpayers while protecting reasonable health and pension benefits negotiated by state employee unions on behalf of middle class public service workers,” Daniel Livingston, the chief negotiator for SEBAC, said Friday. “The Malloy administration has assured us they have been, and will continue, complying with the retiree aspects of the 2011 SEBAC agreement, including the OPEB trust fund, and we will continue to monitor the situation.”
If the funds are in the common cash pool they are earning about 0.10 percent, as opposed to the 5.7 percent they would be earning if they were in a longer-term investment account.
“Estimates used to calculate the fund’s assets are contingent on the funds being invested using, in part, a long-term investment strategy,“ Williams states in her report. “Investment options are being discussed which would involve removing the funds from the Treasurer’s common cash pool and placing them in an irrevocable trust as required by the Revised 2011 SEBAC Agreement.”
“To date, OPEB fund cash balances have fluctuated and have been relatively small, making long-term investments impractical,” Nappier said in a statement Friday. “If the state ceases to use the assets of this Trust to cover current OPEB benefits, or when contributions materially outpace payment of benefits, my office will be prepared to employ a long-term investment strategy. Until then, any fund assets will continue to be maintained in the common cash pool with any positive balances earning interest at the common cash pool rate.”
At the moment the fund isn’t $49.6 million, it’s actually running a deficit of $13.6 million, “which means that retiree health expenses have exceeded appropriations and employee contributions as of this particular point in time,” Nappier said.
Rep. Vincent Candelora, R-North Branford, said it’s a “grave concern” if that money is in the common cash pool and not a trust.
“I don’t know how you would be getting return on money that isn’t there,” he said.
Candelora, who has been sounding alarm bells about the balance in the common cash pool for at least a year now, said that when you have a “negative checkbook balance” you have to ask the question “where the heck is that money?”
Last month, the cash pool balance stood at $121 million, when last year at around the same time it stood at $895 million, according to state Treasurer Denise Nappier.
The dip in the state’s cash pool also has Democrats concerned.
Sen. Eileen Daily, D-Westbrook, said she’s concerned the state has less cash than it had this time last year.
“We’ll continue to watch the situation carefully,” Daily said Friday.
The challenge will be the next budget, which Rep. Sean Williams, R-Watertown, predicted will run a deficit.
The savings the state expected to realize from the SEBAC agreement have not come to fruition and the fact that “we’re spending more money as a state,” doesn’t bode well for the future, Williams said.
“We are not in a better position than we were several months ago,” Williams said. “We may be asked again to vote on tax increases.”
Candelora predicted the state will have to borrow money to cover operating expenses sooner rather than later, but Nappier dismissed that assertion earlier this month.
“While the need for external funding sources is possible, it is not probable at this point,” Nappier said in a June 6 statement. “We are not currently planning to request authority for any short-term cash flow borrowing.”
Nappier laid out several options for lawmakers in her letter, but warned that it hasn’t gotten to that point just yet.
“This decline could trigger periods of cash flow pressure, which would require more extensive transfers to the common cash pool and possibly the need for external funding sources (e.g., short-term options include temporary notes, or a line of credit, longer-term options include issuance of bonds to more rapidly fund the GAAP deficit),” Nappier wrote.
Nappier warned that the situation is dependent upon changes in revenue and expenditures over the last few weeks of the fiscal year.
The Finance, Revenue, and Bonding Committee revised their revenues estimates downward in many categories Friday when they adopted the 2013 revenue estimates.