Hartford Business Journal

20 Hartford Business Journal • November 23, 2015 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Malloy right to focus on pension-fund fix G ov. Dannel P. Malloy has shown leadership in his quest to heal Connecticut's ailing pension fund, which could drive the state off a fiscal cliff in no short order unless drastic measures are taken to develop a new strategy that pays down billions of dollars in unfunded liabilities. While previous governors ignored the looming pension crisis for years — and also exacerbated the problem with poor policies that increased the state's unfunded liability — Malloy has been trying to tackle the issue since 2011. The business community should be thankful Malloy is expending some politi- cal capital on this issue. If it's ignored for much longer Connecticut's fiscal crisis will become so acute, massive tax hikes would be unavoidable, sending additional residents and businesses rushing to the exit door. A recent study by Boston College's Cen- ter for Retirement Research found that if the state remains on its current path to funding pensions for state workers and teachers, the annual budget expenditure would increase from around $1.8 billion today to $6 bil- lion by 2032. In a recent interview with the Hartford Business Journal, Ben Barnes, the state budget director, likened that scenario to driving off a fiscal cliff. "Who's going to want to be in that car?" Barnes asked. That frank assessment reflects the precarious financial position our state is truly in. Malloy's pension-rectifying efforts started in 2011 and 2012, when the Democratic governor decided, among other changes, to accelerate payments into the pension fund to begin shoring up what is now $25.7 billion in unfunded liabilities owed to state work- ers and teachers. Unfortunately, pension costs are still growing faster than anticipated, prompting Malloy to hire Boston College to provide a frank assessment of the unfunded liability and some options on how to fix it. Their suggestions, which have been called "radical" by some key state officials, include splitting off the 31,600 most expensive retirement system members, known as Tier I beneficiaries, and paying their benefits over a longer period of time through an annual appropriation in the state budget. Malloy also wants to lower investment-return expectations, which will require greater annual contributions in the near term, but help avoid a spike in annual payments to approximately $6 billion around 2032. We are not 100 percent on board with all that Malloy is proposing. Even the governor admits there are still many financial and legal questions that must be answered. For example, Treasurer Denise Nappier believes splitting the pension fund and using a pay- as-you-go method would violate bond covenants from $2 billion in debt the state took on in 2008 to reduce unfunded liabilities in the teachers' fund. Comptroller Kevin Lembo has raised various other issues with Malloy's plan and has pitched his own ideas, which don't include the pension-plan split. Democrats, Repub- licans and the business community are also now closely paying attention to the issue. Regardless of whether all, some or none of Malloy's suggested pension changes are part of the final solution, the governor's efforts have brought the issue to the forefront of taxpayer's minds. It seems as though policymakers on both sides of the aisle finally realize now is the time to rectify the state's unfunded pension liabilities, before they drown the state budget. The tidal wave is coming. n OTHER VOICES Time for public-private partnerships to drive CT's economic growth, development By Oz Griebel V ibrant metro areas like Atlanta and Oklahoma City sustain their enviable economic success on public-private part- nerships that include the governor, municipal leaders and CEOs of major private-sector employers. These partnerships all have one overriding mis - sion: To drive econom- ic and employment growth that provides a premier quality of life for all residents and that funds critical public investment and services. With Gov. Dannel P. Malloy's call for bipar- tisan discussions to address Connecticut's sig- nificant fiscal challenges and the election of a new mayor of Hartford, we have the impetus to establish equally effective partnerships for the state and for the city. Such partnerships will allow us to address immediate fiscal issues equitably while creating the political will need- ed to implement the structural, indeed radical, changes required to put the state and the region on a path of robust and sustainable growth. At a time when every state faces economic volatility, underfunded retiree pension and healthcare benefits and growing municipal deficits, Connecticut's greatest advantage lies in the powerful combination of private sector and government leaders working imaginative- ly and collaboratively to fix our state's finances and to restore private-sector confidence. A pri- vate sector that can depend on stable public budgets and predictable tax policies will gener- ate the critical employment opportunities for residents of all ages. Connecticut's fis- cal challenges have grown steadily in a bipartisan manner over the past two decades, and correct- ing them will require sustained collabo- ration and innova- tion. Merely repeat- ing rigid historical approaches to eco- nomic growth and the delivery of public services will guaran- tee further decline in population, anemic income growth, and the absence of meaningful employment opportunities thereby undermin- ing Connecticut residents' quality of life. Politics is, however, the art of the possible. In that spirit and in response to Gov. Malloy's request for specific ideas, we recently sent a let- ter to Malloy and the legislature (which can be found at metrohartford.com) outlining seven concepts to serve as the immediate agenda for the proposed partnerships and for adoption in the 2016 legislative session: • Adopt a tightly-drafted constitutional amendment for voter ratification in Nov. 2016 that ensures that transportation funds are used for transportation projects and that clarifies the 1991 spending cap amendment to strengthen its intent and ensure access to federal dollars; • Using Enterprise Florida and the Connect- icut Airport Authority as models, establish the Department of Economic and Commu- nity Development as a private-public entity to drive our economic development strat- egy and our initiatives to retain and recruit private-sector employers; • Develop a comprehensive strategy to exploit our unique inventory of financial services and healthcare assets to drive employment and per-capita income growth; • Develop partnerships with our health insurers and providers to address the exponential growth in the Medicaid pop- ulation that drives rocketing increases in uncompensated care and the transfer of that cost to employers providing cov- erage for their professionals; • Incentivize regional collaboration for the delivery of municipal services by ensuring that each municipality receives 90 percent of its FY 2016 allocation in FY 2017 with the Office of Policy and Man- agement retaining the remaining 10 per- cent and the authority to provide those dollars to the relevant council of govern- ments for such delivery; • Address the issue of underfunded PILOT payments via the state entering into sale- leaseback agreements on office buildings that it owns to increase cities' grand lists and thereby reduce mill rates that cur- rently eliminate unsubsidized private investment; and • Leverage the Boston College study of the state pension system to address the unfund- ed components of that system and the relat- ed retiree healthcare benefits, to reduce the percentage of each budget allocated to such obligations, and to reestablish realis- tic criteria regarding annual returns on portfolio investments, work rules, spik- ing options, age and years of service for collecting benefits, cost-of-living adjust- ments, and the option of offering lump-sum payments to retirees. This is a watershed moment in Connecti- cut's fiscal and eco- nomic history that demands the full collaboration and engagement of the best and brightest in gov- ernment and the private sector. By building and sustaining dynamic public-private partnerships based on candor and innovation, we will reverse the downward spiral of the last decade. More importantly, we will honor our joint fiduciary obligation to ensure that Connecticut competes aggressively and successfully for jobs, capital and talent, the foundation of genuine opportunity for a premier quality of life for all residents today and for generations to come. n Oz Griebel is president and CEO of the MetroHartford Alliance HARTFORDBUSINESS.COM POLL Should the state sell some of its Hartford properties to bolster the city's tax rolls? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Should the state invest more in bike/ pedestrian pathways? 54.1% Yes 45.9% No Oz Griebel ▶ ▶ Connecticut's fiscal challenges have grown steadily in a bipartisan manner over the past two decades, and correcting them will require sustained collaboration and innovation. ▶ ▶ It seems as though policymakers on both sides of the aisle finally realize now is the time to rectify the state's unfunded pension liabilities, before they drown the state budget.

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