The gubernatorial campaign of 2010 was marked by a universal condemnation of the budget gimmicks and irresponsible fiscal maneuvering that got Connecticut into its present fiscal disaster.
Candidate Dannel Malloy was probably the most outspoken critic of the fiscal shenanigans that had become the norm in Connecticut state government and earned praise across the board for his commitment to put an end to governance by gimmick.
Although many were shocked by the magnitude of Gov. Malloy’s proposed tax increases and budget cuts, newspaper editorial writers have showered the governor with accolades for having the courage and conviction to put an end to fiscal gimmicks and finally provide the state with a balanced budget.
And the new governor’s commitment to balancing the budget is, indeed, impressive but there is one huge problem with the picture.
Although Malloy’s budget contains hundreds of millions in new income taxes and hundreds of millions in program cuts, the single biggest change in the entire state budget is his decision to include $1 billion in concessions from Connecticut’s public-sector employees.
However, the number the Malloy Administration has used to “balance” the budget is not achievable and everyone “in the know” knows that.
Without this faulty number, the governor’s proposed budget is more than $500 million out of balance. To address that massive hole up front would have required even more taxes and program cuts. From the anger and frustration that is presently sweeping Connecticut as a result of the size of the proposed tax increases and program cuts, one can certainly understand why the governor would do everything possible to discussing reality.
Which is this: Even more taxes and cuts will be needed.
Instead of providing a true balanced budget, Malloy made it very clear. If state employees fail to provide $1 billion this year -- and another $1 billion next year – he would be forced to shred the state’s human and social service safety net and lay off thousands of people.
So a billion bucks from the state employees or else all hell breaks loose.
Let’s examine the facts:
The economy is bad, most people aren’t getting increases or bonuses (unless you work on Wall Street) so let’s start by cutting out the money that would be needed to give state employees a raise 3 percent or so raise. Easy to defend, easy to do and saves the state $160 million.
Next, furlough days are good way to save money. Many states and even some private employers are using them. Employees are told to stay home a certain number of days and that way the employer doesn’t have to pay them for that day.
For each furlough day, Connecticut saves $14 million. In each of the past two years, state employees have been given three furlough days for a savings of about $42 million each year. Let’s double or triple or even quadruple the number of furlough days. We’ll tell state employees to stay home one day each month. True, some critical work may not get done, but budget cuts are needed and the net effect of 12 furlough days is cutting pay by 5 percent. The good news is we save another $168 million.
Where are we at this point?
We’ve frozen pay and effectively cut wages by 5 percent with furlough days and we have saved a grand total of $328 million.
Only $672 million more to go.
We can increase the amount of money state employees contribute to their pensions. Over the long run, that will help put the State Employee Retirement System (SERS) on better footing but unfortunately it will have not save the taxpayers any money now.
Because when Gov. Jodi Rell and the Democrats decided not to make the required payments to the pension fund for the last three years, it became so underfunded that we now have to make those payments just to ensure the fund stays afloat. That said, if we require state employees to contribute 3 percent more of their salary, it will get an extra $96 million into the fund. A worthy step perhaps but doesn’t count toward the $1 billion Malloy has demanded.
Connecticut state pensions, like Social Security and most other public pension funds have a cost-of-living adjustment (COLA) that is tied to inflation. That said, Connecticut could cap or even eliminate COLAs for future Tier II and Tier IIA retirees. Again, it wouldn’t save any tax money now but would save the pension almost $50 million a year going forward.
There has also been talk of basing a retiree’s pension on their average salary over a five-year period rather than the present three-year system. This change would make “gaming” the system more difficult. Again, it wouldn’t save taxpayers now, but it would mean a saving to the pension fund of about $22 million a year going forward.
Finally, increasing medical premiums for active state employees is definitely an option.
Increasing employee premiums by $350 might save as much as $18 million. If we really want to dump on state employees, we could jack up their premiums by $1,000. At that level we might even save $60 million a year.
So where does that leave us.
No pay increase, a dozen furlough days and blowing their co-pays through the roof and we save taxpayers a total of about $388 million next year.
It’s an impressive amount. The problem is, if the Malloy Administration is successful in actually bringing state employees to their knees and wins all of those concessions, the budget will still have a $612 million deficit.
And that, in turn, brings up back to Malloy’s pronouncement that if the state employees fail to provide $1 billion in savings, the budget will be out of balance and the fault will lie squarely with the state employees and no one else.
Saying the budget is balanced when it is not is, in short, a gimmick to beat all gimmicks.
Malloy gets the credit for proposing a balanced budget despite knowing that it isn’t balanced. When Connecticut discovers the budget isn’t balanced after all, the fault is not the governor’s but those good-for-nothing state employees.
The very state employees, who, as we all know, are already Public Enemy No. 1.
It is a brilliant strategy.
The Malloy administration and the state employee unions are engaged in hard negotiations. The state employees know that if they don’t give enough they will be laid off. Then, when they do give, the administration will be “forced” to regrettably announce that the budget is fatally in deficit and the governor has no choice but to make additional cuts and propose additional tax increases.
So the era of budget gimmicks is over -- just as soon as we get through this last one.