Lamont Will Need to Confront ‘Iceberg’ of Unfunded Pension Liabilities
A week ago Gov. Ned Lamont told the Greater Waterbury Chamber of Commerce that one of the things that surprised him when he got a good look under the hood of state government was the “scale of the fiscal crisis.”
He said he knew the state was facing a fiscal crisis with all the work that has been done on the issue over the last few years, but he didn’t really know how bad it was.
“But maybe I thought that this was an iceberg that was a little over the horizon,” Lamont said.
He knew the state faced large unfunded pension deficits, but he figured the crisis maybe was a little further away.
“As we got into the books and were looking at the numbers — we’ve got to hit it head on right now,” Lamont said.
He said the state employee pension is going up $100 million a year “for us the taxpayers to pay” and the teachers pension fund is in critical condition. He said the problem is immediate.
The contributions to the teacher’s retirement system are scheduled to go up sharply and it could “put us on a razors edge” in terms of fiscal stability, Lamont said.
He said Connecticut’s bonded debt and long-term liabilities are eating up about 30 percent of the general fund.
“We can’t afford to do it all,” Lamont said.
The annual contribution to the Teachers Retirement System is about $1.3 billion, but it could grow to $6.2 billion by 2032 because of years of underfunding. After 2032, the required payment would drop precipitously but officials are more concerned about how to handle the steep cost curve leading up to 2032. Connecticut didn’t start setting aside money to pay for teachers until around 1982.
The pension fund, according to the last valuation, has enough assets to cover 56 percent of its long-term obligations.
Another complication is that in 2008 Connecticut borrowed $2 billion to shore up the fund. That bond is expected to be paid off by 2033. When that borrowing was approved, Connecticut pledged in a bond covenant to contribute the minimum annual payment to the fund for 25 years. Only in extreme circumstances would Connecticut be allowed to skip the payment.
“What I can promise you is I want to put the state Lottery into the teacher’s pension fund,” Lamont told the retired teachers on the campaign trail.
He said the Lottery revenue will help shore up the pension fund, which is underfunded by about $13 billion. He said they also need to find a way to increase the investment returns earned by the fund.
Former state Treasurer Denise Nappier also pitched using the Lottery to shore up the teacher’s retirement fund.
State Treasurer Shawn Wooden, in an interview with Hearst Connecticut Media, said he will suggest that Lamont extend the period that the state pays off pension-related bonds, while leveling off payments that are currently on track to balloon to $2 billion to $3 billion a year over the next four years in the teachers’ fund alone.
Wooden declined to offer more details on that idea earlier this month.
The state will get a clearer understanding from Lamont on Wednesday about how he plans to tackle the pension crisis.