SAVE CONNECTICUT. A Plan to Save State Employee Benefits from Insolvency and Build a Foundation for Fiscal Stability

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1 SAVE CONNECTICUT A Plan to Save State Employee Benefits from Insolvency and Build a Foundation for Fiscal Stability

2 SAVE CONNECTICUT The most important responsibility for our next governor is to Save Connecticut from a financial crisis a crisis that threatens our families, our jobs, and our state employees retirement security. OVERVIEW Connecticut has faced chronic budget crises for years. Last year s crisis lasted a record 123 days. 1 The next governor faces projected annual budget deficits of $2 3 billion on operating revenues of $25 billion. 2,3 The 2017 budget crisis provided a preview of what is in store if we stay on the current path: cuts to towns for police; cuts to education for our children; and cuts to programs that support the most vulnerable in our state. The biggest cost driver threatening the future of Connecticut is our underfunded pension and health benefits that have overrun our budget. Connecticut now spends the highest percentage of any state in the country for state employee retirement benefits and debt about three times the national average. 4 If that is not bad enough, retirement payments are projected to explode even higher from their current levels. Annual contributions from the state budget to the retirement plans are projected to increase from $2 billion this year to over $8 billion There is simply no way we will be able to make those payments without significant cutbacks in essential services or significant tax increases. No career politician or labor leader has been willing to talk honestly about these problems. They have feared losing the next election and they lack ideas of what to do. As a political outsider focused solely on the interest of the people of Connecticut, David Stemerman will shine a bright light on our challenges. As a businessman with an entrepreneurial mind-set, he will propose and accomplish outside-the-box solutions. Solutions that will be fair to us all to government employees, to taxpayers, and to our children. Solutions that will provide security to our state government employees and retirees and set us on a path to recovery and prosperity. Connecticut Massachusetts National Avg. New York Connecticut spends almost 30% of receipts on retirement liabilities and debt. The national average is 10%. Neighbors New York spends 10% and Massachusetts spends 18%. NATIONAL AVERAGE Connecticut Commission on Fiscal Stablility and Economic Growth, Final Report. March Page Connecticut Commission on Fiscal Stablility and Economic Growth, Final Report. March Page Connecticut Commission on Fiscal Stablility and Economic Growth, Final Report. March Page 21.

3 HOW DID WE GET HERE? We got to this crisis point as the consequence of decades of kick-it-down-the-road decisions from political insiders, made to get them reelected and plug a budget hole in the short term. They have undermined the long-term health of Connecticut s economy and the security of state employees retirement plans. If the state had been required to put aside the money for the full cost of these plans as is required in the private sector this would never have happened. The benefits promised would have been realistic and the contributions from the state and employees would have been responsible. NOW, OUR HARDWORKING STATE EMPLOYEES AND RETIREES FACE THE REALITY THAT OUR STATE IS UNABLE TO PAY FOR THE BENEFITS THEY WERE PROMISED. The magnitude of the problem is so large that it is hard to comprehend. The state employee pension program is funded at only 29%, the teacher s pension program is funded at only 52%, and health care benefits funded at an appalling 1 2%.6 In total, unfunded liabilities run in the tens of billions of dollars according to government calculations. When calculated properly using reasonable assumptions and combined with state s outstanding debt, the number is over $100 billion!7 We find ourselves in this untenable position despite pulling all the levers of state government for the last eight years to fund these retirement benefits. Governor Malloy signed the two largest tax increases in state history to provide the revenues to pay for these benefits, doubled the percentage of the budget devoted to retirement benefits, and contributed billions of dollars. Despite all of those actions, the accumulated liability has increased by nearly $10 billion, and the percentage the retirement plans have been funded has declined by over 5% since The failed attempts to resolve the underfunding of our retirement plans has made our fiscal crisis worse. Our economy is smaller and we have fewer jobs than 2004 a lost decade following the two largest tax increases in state history.9 Uncertainty over future tax increases is causing people and jobs to leave our state. As a result, projections for future tax receipts are declining. The current situation is unsustainable and is unfair to everyone: S tate employees will not receive the benefits they were promised, and have not had accurate information about the underfunded status of the plans in order to save and plan for their own retirement. T axpayers are paying for benefits they cannot get themselves, have been saddled with tens of billions of dollars of debt, and now work for the government to pay their taxes for longer than the people in any other state in the country. Tax Freedom Day for the taxpayers of Connecticut is May 21st.10 The Next Generation, who are being starved of opportunity,both education and jobs, and whose future has been mortgaged to pay for the sins of the past. Connecticut Commission on Fiscal Stablility and Economic Growth, Final Report. March Pages 49 and 75. Connecticut Commission on Fiscal Stablility and Economic Growth, Final Report. March Page Connecticut Commission on Fiscal Stablility and Economic Growth, Final Report. March Pages

4 SAVE CONNECTICUT DAVID S PLAN TO SOLVE OUR PENSION CRISIS David Stemerman is a political outsider and a businessman who knows we must confront these problems headon to solve them. We will need to make difficult decisions, take bold actions patterned on success in the private sector, and come together to reach a settlement that is fair to everyone. THREE COMMITMENTS WILL GUIDE DAVID AS OUR GOVERNOR: First, retirees will know that they will be paid what they are promised going forward. Second, taxpayers will not pay for retirement benefits greater than what they can earn themselves, and they will no longer bear the risk of guaranteeing defined benefits. Third, we will invest as a State the resources we need to meet our responsibilities for our children and the generations that follow.

5 In order to achieve a fair and sustainable system, we must restructure our state employee retirement plans. To fund and settle claims for past earned benefits, the state will contribute additional assets into a newly created and independently managed trust in exchange for employees and retirees accepting changes to their retirement plans. Future benefits will be fully funded as earned in a new plan with employee choice. New Resources to Support State Employee Retirement: Assets to support the benefits earned by retirees and employees will come from the accumulated assets of the retirement plans plus three additional new contributions from the state: First, a lump sum payment; Second, underutilized state-owned assets; and Third, a financial incentive tied to the future economic performance of the State of Connecticut that will align the interests of state employees and retirees with taxpayers and employers. The total amount of assets and payments contributed to the plans will be capped by the state s need to have a sustainably balanced budget and meet its obligations to future generations. Many private sector companies have used pension risk transfer to guarantee retiree benefits. Companies like International Paper, General Motors, and others have been able to provide their retirees certainty through a transfer to a guaranteed annuity program. New Independently Managed Trust: The newly created locked trust will be run independent from state control. We will request bids from the private sector to manage the trust. Private sector bids will give state employees and taxpayers an independent and market-based assessment of the cost to support benefit plans. Private sector management would provide state employees security that their benefits will no longer be at risk from being underfunded by politicians or mismanaged by the State Treasurer. Private sector management would protect taxpayers from the risk of state mismanagement of plan assets and would get the taxpayer out of the business of guaranteeing future investment returns. Redesign of Benefit Plans: All aspects of employee and retiree pension and health plans will be evaluated to agree upon a plan that is balanced and sustainable. We will balance the interests of retirees and more tenured employees with more recent employees and new hires. We will use benefits earned in the private sector as a benchmark. Employees Are Offered a Choice CT Plan: For future benefits, all state employees will be offered a choice between a high-quality defined contribution plan or a risk-managed defined benefit pension plan that is built to last and removes the risk to the taxpayer. Plans in the business world that are funded below 80% are considered insolvent much higher than the current funding levels of our plans. We must understand that there is simply not enough money today, nor will there be tomorrow, to pay for all of the benefits that have been promised. Utah enacted a risk-managed hybrid plan for new employees. The new plan lowers costs for taxpayers and maintains retirement security for public workers.

6 SAVE CONNECTICUT A NEW, FAIR DEAL WITH STATE EMPLOYEES David knows that our government employees play a critical role in delivering essential services for our people including safety, health, education, and transportation while assisting the most vulnerable among us. Hearing about our fiscal crisis is hard to take for those who have invested so much in our state. Our state employees and retirees have likely had a long-standing suspicion that the benefits they have been promised were simply too good to be true. They now face the reality that the money is simply not there to pay for them. David is strongly committed to establishing the security for their retirement savings. Meaningful reform must be focused on ensuring that state employees will receive well-earned benefits, rather than see them extinguished as Connecticut falls off a fiscal cliff. We will begin a new chapter in our relationship with our state employees that modernizes mutual responsibilities and applies best practices from the private sector and high-performing states to Connecticut.

7 AS GOVERNOR, DAVID WILL: Implement Portable Benefits We will give our government employees the same flexibility as in the private sector to accumulate benefits and to bring their retirement savings with them to a new job. Improve State Workforce Morale David will institute a comprehensive survey of state employee attitudes, ideas, and concerns, and take action on the best ideas and insights. Example of the CT Public Service Fellows Program: A state employee who serves an adoption and foster care function could spend one quarter at the Connecticut Department of Education as a CT Public Service Fellow to help bridge the gap between the Department of Education and its work to provide children in the adoption and foster care system a better experience in public education. Michigan Governor Rick Snyder successfully instituted a comprehensive survey of state workers in an attempt to create a culture in which state employees are engaged, empowered, and recognized for their contributions. 11 Establish the Connecticut Public Service Task Force The Connecticut Public Service Task Force will address ideas from the comprehensive survey of state employees and institute an implementation plan to execute the best ideas. Establish the CT Public Service Fellows Program In order to foster a culture of entrepreneurship in government, David will establish the CT Public Service Fellows program to grant certain state employees quarterly rotational programs to add value and expertise to agencies with an aligned function. Hold Quarterly CT Public Service Hack-a-thons focused on intractable social problems All state employees who believe they have value to contribute in identifying solutions to complex and seemingly intractable social problems, will be invited to mix data with experience to identify cross-agency solutions. Topics will be identified by state employees who have a passion or experience that will help solve problems. The Stemerman Administration will invite partners in government, the private sector, nonprofit sector, and faith community to participate in these sessions. We will begin a new chapter in our relationship with our state employees that modernizes mutual responsibilities and brings practices in keeping with the private sector and high-performing states. 11

8 SAVE CONNECTICUT GOOD GOVERNMENT Connecticut is one of only four states in the nation to set retirement benefits through collective bargaining rather than in statutes 12 The Commission on Fiscal Stability and Economic Growth called for this reform, saying in part, Join the large majority of states that vest the power to determine pension and retiree health benefit formulas and funding policies for state employees with the legislature, rather than in collective bargaining. 13 In addition to resolving our current crisis, we will make good government reforms to prevent this from happening again. As governor, David will: Enact reforms to require all future labor agreements for wages and benefits be set in statute by the legislature instead of being codified in a deal between the Governor and the leadership of the state employee unions. Create an independent body to make recommendations to the legislature for future wages and benefits based on private sector benchmarks and budget sustainability. Enact criminal penalties for political appointees that misstate the funding status or key assumptions for retirement plans as is done in the private sector. Strengthen our conflict of interest rules so that paid members of state employee unions are not allowed to vote on matters that directly affect their own compensation. As a businessman with an entrepreneurial mind-set, David is best suited to accomplish these outside-the-box solutions that are fair to government employees, taxpayers, and our children. DAVID NEEDS YOUR HELP TO SAVE CONNECTICUT: Save our state employee retirement plans Save our taxpayers Save our children s future Coming together, we will build a future where Connecticut is once again the best place in the country to live, work and raise a family and where our only limit is our own imagination Connecticut Commission on Fiscal Stablility and Economic Growth, Final Report. March Page 9.

9 Coming together, we will build a future where our only limit is our own imagination.

10 LEARN MORE: STEMERMAN FOR GOVERNOR 2777 Summer Street, Suite 404 Stamford, CT (203) CAMPAIGN CONTACT TO VOLUNTEER MEDIA REQUESTS Version: April 30, 2018 PAID FOR BY DAVID STEMERMAN FOR GOVERNOR, INC. HENRY SCHAFFER, TREASURER. APPROVED BY DAVID STEMERMAN.