Via Meadia has already discussed the massive pension scam unfolding in Minnesota, but readers in Connecticut can stop gloating — an even bigger pension mess may be heading your way. A recent CBS story reported that Connecticut’s Governor has announced plans to deal with the funding of woefully underfunded state pension plans. The story should be familiar by now: in the plush years of the nineties, state politicians and unions negotiated generous pension deals that would be paid for by hefty payments far down the road. Any qualms about the cost were hushed up by a simple mathematical trick — assume big enough investment gains and a sick pension looks strong:
Malloy has been critical of the agreements reached between former Republican Gov. John G. Rowland and the state employee union leaders back in 1995 and 1997, which included an early retirement incentive program and allowed the state to defer most of its unfunded pension liability into the future. It required a hefty, one-time payment of $4.5 billion in 2032 to fully fund the pension plan.
Moving to fund the plan now rather than hoping for good times in 2032 is a smart move, but it will come at a heavy price for Connecticut—requiring payments of $125 million for years in the future. Even these payments will only get the funding up to 80%, and that number is likely to fall when new and stricter accounting standards kick in. Once again, state workers would be wise to plan for a retirement where they do not receive their pension benefits in full.
In Connecticut, it was the GOP leadership of the 1990s that pandered to the unions, and the Democrats who are now cleaning up the mess. It took two parties to get us into this mess, and it is going to take some heavy lifting by both parties to clean it up.
One lesson from Connecticut is clear: taxpayer advocates and fiscal conservatives need to organize themselves to speak up forcefully when politicians and union bosses start negotiating. All too often, these negotiations take place without a lot of public scrutiny or debate; this is how terrible pension deals and unsustainable labor agreements get made. Politicians should learn there’s a downside to sweetheart union contracts. That will only happen if voters learn to pay attention to these deals.