Letter to the editor from Sean Goldrick, received March 7, 2017
Governor Malloy has proposed tough action to close a looming $1.7 billion state budget deficit, a key element of which is a proposal that local school districts begin sharing responsibility for funding teacher pensions.
It’s a reform that is not only necessary, but long overdue. But in order to understand why, it’s important to understand the unique structure of Connecticut’s government.
Connecticut is one of a tiny handful of states, including Massachusetts and New Jersey, in which the state government shoulders 100% of the responsibility for funding public school teacher pensions.
In most states, local school districts are required to fund teacher pensions, while a couple of states, including California, share the responsibility with local school districts. Maryland used to fund teacher pensions at the state level, but beginning in 2012, shifted responsibility to the local school districts.
So Governor Malloy’s proposal to require local school districts to begin paying a portion of teacher pensions would begin to bring Connecticut into line with the pension structures of most other states.
Why make the change now? One critical reason is that funding teacher pensions has become a considerable burden for the state government to shoulder alone. Until Governor Malloy took office, no governor had fully funded the annual required contribution (“ARC”) for teacher pensions. Despite that failure, by 2000, buoyed by strong capital market performance during the Clinton years, Connecticut’s teacher pension system’s fundeding stood at a healthy 83% of liabilities. But failure of the Rowland-Rell administrations to fully provide for pensions combined with the disastrous performance of capital markets under the Bush administration to push the funded ratio below 50%. Since 2008, total unfunded liabilities have doubled to $13.2 billion, while the required annual contribution to the teachers pension fund has risen two and a half times to $1.3 billion. The result is that the ARC now comprises 7% of the entire state budget.
Are teachers to blame for the rising cost of funding the pension system? No. In fact, according to the report by Boston College’s Center for Retirement Research, Connecticut teachers contribute a higher proportion of their salaries to the normal cost of their pensions than the national average (6% versus 5.6%), while the government’s contribution to normal cost comes to just half the national average. The increase in the ARC is overwhelmingly the result of underfunding during the Rowland-Rell years and poor investment performance.
Further, Connecticut is one of just sixteen states whose teachers are not permitted to receive Social Security. Connecticut teachers are also subjected to unfavorable pension requirements, including ten-year vesting, substantially longer than the national average. The long vesting period means that nearly half of all Connecticut teachers never receive a pension. So teachers’ retirement benefits are not generous, and those benefits are not to blame for the ill-health of the pension fund.
Governor Malloy has done his best to shore up the pension fund, fully funding the ARC every year during his tenure, while reducing the expected rate of return. But the looming $1.4 billion annual expense for 2018 needs to be shared with municipalities in order to tackle the state budget deficit caused by sluggish growth in tax receipts.
Governor Malloy’s plan asks school districts to help out by paying 30% of the cost of funding their teachers’ pensions, amounting to just over $400 million. But the plan is being rolled out in connection with reforms of the educational cost sharing plan, with more funding to be directed to lower-income communities struggling to fund their school systems. Taken together, 31 economically hard-pressed communities will receive greater overall funding from the state next year.
Were the state’s tax receipts growing faster during this recovery, perhaps Connecticut could maintain the old system of state-level funding for all teacher pensions. But with a $1.7 billion deficit looming, and a similar deficit the following year, asking municipalities, particularly the wealthiest towns, to shoulder some of the burden that is considered normal in virtually every other state is necessary.
Governor Malloy is tackling the state’s budget deficit in a rational manner. He’s protecting and supporting school systems that need greater funding by reforming the educational cost sharing system, implementing long-overdue structural funding reforms for public school teachers retirement system, while safeguarding public school teachers’ retirements.
Sean Goldrick served two terms as a Democratic member of the Greenwich Board of Estimate and Taxation. He lives in Riverside.