Monday, February 07, 2011

Reform Arrives in Connecticut

Sunday’s editorial in the Hartford Courant was titled “Reform In The Air For Public Pensions” and, as if to press the point, the paper provided a further caption: “States and municipalities must face up to excessive costs and retrench.”

Really, they MUST.

Of course the necessity for reform has been in the air, even here in inattentive Connecticut, for a good long time, while the itch for reform in Connecticut’s only state-wide newspaper has been relatively recent. The state’s failure to keep up its pension obligations probably turned the trick. Investors are now fleeing municipal pension funds, and the state’s own fund, the paper advises, is “sickly.”

An actuarial report last year “showed the fund to be in the worst shape ever — due to a decline in investment earnings common to all states and to bad decisions by politicians trying to balance the budget. Those included deferred contributions to the fund and early-retirement programs.

“The report showed $9.35 billion in assets in the pension fund as of June 30, compared with $21.1 billion in obligations — making a funded ratio of 44.4 percent. Actuaries typically cite a ratio of 80 percent as fiscally healthy.”
And even Connecticut’s prototype of the perfect progressive, New Haven Major John DeStefano, has joined the chorus.

Suddenly realizing the city’s pension fund is due to run out of money in 15 years, the scales have fallen from Mr. DeStefano’s eyes. This bolt from the blue struck Mr. DeStefano just weeks after he was re-elected to office. He now plans to ask unions to adopt such necessary reforms such as an elimination of cost-of-living adjustments, an increase in employee contribution rates, an increase in the number of years of service necessary for retirement, a rise in age qualification for retirement and a reduction in maximum benefits.

Even Hartford has yielded to the tug of reform. Taking half measures and baby steps towards the inevitable, Hartford’s city council “reined in,” the Courant tells us, “the city's overly generous pension plan, but only for nonunion employees, who represent a small minority of city workers.” Under the old dispensation, “nonunion employees could retire after 20 years of service — or in some cases 25 years — regardless of age and could immediately begin to draw benefits.”

And here is the editorial shriek: “Imagine: a 38-year-old drawing pension benefits and in many cases health benefits for life. That's still the deal for some union employees.”

Well now, how long has this been going on? For how many years has the patient lain unattended on the sick bed? A week? Two weeks? Twenty years?

This winter householders will have noticed the unmelting ice packs lying atop their roofs. Reminders of the failure to attend to the problem are everywhere. Nature has a way of tapping the indifferent on the shoulder: Leaks pour through the window mountings on living room walls; the usual political spendthrifts go a’begging to Washington, tin cup in hand, for assistance funds; flat roofs come crashing to the ground. Connecticut’s spending pack has been accumulating weight on our own little Democratic house undivided ever since Gov. Lowell Weicker favored the state with an income tax and quickly left town. The state’s budget, swollen every fiscal year with unreturned surpluses, is now in the red. Who could have guessed that in the post income tax era unabashed spending would have resulted in knee deep red ink?

Really, something must be done. RIGHT AWAY.

Gov. Dannel Malloy lately has been making sounds to state workers, business folk and tax payers that something most certainly will be done. Sacrifices will be shared. Here and there, hints have been thrown out that the governor will both cut spending and raise taxes. The spending cuts will exceed the tax increases by a few percentage points, according to some reports, but the worry is that the tax increases will be permanent, while the spending cuts may be temporary.

A rumor now being pushed through the rumor mill is that the governor, on the quiet, has been mollifying those in the state averse to permanent spending cuts by pointing out that such cuts may always be uncut over time. In Connecticut, the escalator on spending runs always in an upward direction, one of the reasons the state budget has trebled within the administrations of the last three governors. Spending increases, temporarily cut, will over time be restored; any tax increase implemented to liquidate a deficit will be permanent. And while permanent tax increases are indeed a permanent sacrifice for those who pay them, temporary spending cuts are nevermore than temporary sacrifices, a necessary political inconvenience.

An authentic solution to Connecticut’s structural deficit would de-escalate spending increases permanently through the adoption of real reforms rather than temporary measures.
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