Lee Elci: Ladies and gentlemen, sitting in that seat of honor right now is our very good pal, Red Jahncke. The website The-Red-Line.com is where you can find Red, and he joins us right now. So, Red, more stuff going on—lots of glad-handing and patting each other on the back the other day up in Hartford, right?
Red Jahncke: Yeah, it was quite a session—making a mountain out of a molehill.
Lee Elci: All right.
Red Jahncke: Really, they had the Governor, the Comptroller, and the Treasurer all patting themselves on the back for the improvement in the State Employee Pension Fund, which inched up from 52% funded to 55% funded. Only in Connecticut do you pop the corks on the champagne bottles to celebrate a 3% improvement.
Lee Elci: So, what causes a 3% improvement? Is it just stock market gains? Is that the simple explanation?
Red Jahncke: In essence. The 3% improvement had nothing to do with any of the three of them. What’s happened is that pension assets have ridden along on the stock market’s skyrocketing, roaring increase over the last several years, including last year.
We’ve had this torrent of federal aid pouring into the state, which provided extra money to divert into the pension fund.
The real story is that the pension fund has improved startlingly little! Going from 52% to 55% is ridiculous. The Governor, Comptroller, and Treasurer focused on the fact that, under Ned Lamont’s administration, pension assets have increased by $11 billion. They conveniently ignored that pension liabilities have increased by $9 billion because Lamont has awarded state employees the most generous wage increases in the nation—a 33% wage increase since his first inauguration. A state employee making $100,000 in January 2019 is now making $133,000 today.
Pensions are tied to wages, so if you increase wages by 33%, pension obligations naturally rise. Pension obligations are up about 28%, which is why there’s been no real progress.
Lee Elci: You know, the stock market was up 22-23% last year, yet they’re only showing a 3% increase in pension funding. What’s the long-term outlook? The stock market can’t keep going up like this—it’s not sustainable. I feel like we’re heading toward an eventual cliff, right? Or am I missing something?
Red Jahncke: No, Lee, you’re spot on. It doesn’t take rocket science or a Ph.D.—just common sense—to realize the stock market won’t go up 20% every year. When there’s a significant correction, or even if the market simply levels off, that entire dynamic disappears.
We know federal COVID aid is over by law. States have until the end of this month—27 days left—to spend the money, or they’ll have to return it to Uncle Sam. There’s no more largesse coming from Washington, and that’s been propping up state budgets around the country, especially here in Connecticut.
Let’s look at two items. The pension fund went from 52% funded to 55%, but most of that is unrealized gains—paper money. If the market drops, the pension fund will drop. Meanwhile, the state has awarded wage increases that permanently boost pension obligations by 33%. Those are legal, ironclad obligations that don’t decrease, regardless of what happens to the stock market. This is lunacy.
Lee Elci: How does Connecticut compare to other states? We’re 55% funded. What about Illinois, California, Washington, or Montana? Are they better or worse?
Red Jahncke: Lamont himself admitted in the press conference that we’re the sixth worst-funded state employee pension fund in the country. The only states worse off are Illinois, New Jersey, and a few others. Connecticut has an undeserved reputation for being “on the mend.” Sure, we’re making progress, but it’s nowhere near enough. If state employee wage increases had just kept pace with inflation, we would’ve saved a fortune.
For context, according to the Bureau of Labor Statistics, $1 in January 2019 is worth about $1.25 today. A wage increase matching that inflation would have sufficed. Instead, we’ve gone overboard.
Lee Elci: Let me ask you this. I have a great guest on every Tuesday who criticizes Lamont relentlessly. Is Lamont really this bad? Is he incompetent, malicious, or just following the Democratic playbook?
Red Jahncke: There’s a movie called Being There, starring Peter Sellers. You don’t need to look further than the title—Lamont has just been there.
The improvements in the pension fund are due to fiscal reforms—what he now calls “guardrails”—that were put in place before Lamont even considered running for office. Credit him for defending the guardrails, but don’t credit him with creating them. He didn’t. In fact, his wage policies have effectively undermined the fiscal guardrails.
Lamont tried to push for tolls and failed miserably. It’s hard to pinpoint anything significant he’s accomplished. If you look at COVID outcomes, Connecticut’s results are no different from New York’s, where Andrew Cuomo was rightfully maligned for the nursing home scandal. The same thing happened in Connecticut nursing homes.
Lee Elci: So, you’re not expecting a Christmas card from the Governor this year?
Red Jahncke: No, I don’t think so. We’re joking, but this is a real tragedy for the state. This was a missed opportunity to make substantial progress on Connecticut’s crushing debt load. The Governor has announced plans to borrow even more money. Connecticut already has the highest debt per capita in the nation.
There’s something fundamentally unfair when state employees earn far more than the taxpayers who fund their paychecks.
Lee Elci: We talked about this even before COVID—the fiscal cliff is coming in this state. It is coming like a freight train. COVID money just delayed it. But at some point, whether it’s this budget or the next, the cliff is coming.
Red Jahncke: Absolutely. We fiddled while Rome has been burning. And Rome has been burning.
Lee Elci: All right, Red. I’ve got to run. Talk to you next week.
Red Jahncke: Be good.
Red Jahncke is a nationally recognized columnist, who writes about politics and policy. His columns appear in numerous national publications, such as The Wall Street Journal, Bloomberg, USA Today, The Hill, Issues & Insights and National Review as well as many Connecticut newspapers.