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To Preserve the Fiscal Guardrails, Freeze State Employee Wages


The best way to defend Connecticut’s fiscal guardrails is to freeze state employee wages that are 33% higher today after six consecutive annual pay increases under Governor Lamont.

The guardrails are under attack by Democrats who want to increase spending. They want to lay their hands on the $6 billion in income tax revenue that the guardrails have diverted from spending and channeled into the state employee retirement fund (SERF) over the last six years.

Yet, cumulative annual dollar increases in state employee wages over the last six years total an aggregate of about $3 billion, according to data in the latest report of SERF’s actuary. In addition, since pensions are based on wages, SERF pension liabilities have increased $9 billion over those six years. That’s $12 billion that has been, or will be, spent on increased pay and benefits for state employees that could have been spent on the Democrats’ priorities.

In the simplest terms, had wage increases been limited to half the actual level, the aggregate wage increase would have been about $1.5 billion and, logically, the increase in pension liabilities only about $4.5 billion, freeing up $6 billion within the guardrails for the additional spending desired by Democrats.

If Democrats want to spend more, they should spend less on state employee wages.  Increased spending is impossible without either freezing wages or busting the guardrails.

Why? Because, the fiscal guardrails entail more than just the Volatility Cap which redirects income tax revenue into SERF. The rails also include the Spending Cap, which keeps overall spending in line with growth (or lack thereof) in the state’s real economy (the increase in personal income or the CPI, whichever is greater). Democrats are already spending up to the Cap. If the $6 billion going into SERF is added back to the budget for spending without limiting state employee wages, then overall spending will exceed the Spending Cap.

Is Connecticut a state that should be increasing spending faster than its economic growth? Connecticut is in the worst financial shape of the 50 states. Its debt per capita ($7,750) is the highest. Its real GDP growth is anemic at 0.9% per year, according to the latest five-year data from the U.S. Bureau of Economic Analysis.

Is Connecticut a state that should be overspending to pay its state employees the second highest wages of the 50 states? – should it be overspending so as to continue with another 33% pay increase over the next two years in Lamont’s current term plus the four years of the third term that he desperately wants?

Under Lamont, state employees have received six consecutive annual wage increases: 5.5%, 5.5%, 4.5%, 4.5%, 4.5% and 4.5%, which compound to 33%. A state employee making $100,000 in fiscal 2019 is making $133,000 today. If this continues through the third term which Lamont wants, that employee will be making $177,000.

On top of that, Lamont has lavished state employees with thousands of dollars of “pensionable” bonuses, and state employees have received an average of $1,000 in pandemic pay rewards. Nice work, if you can get it.

And state employees can get it, because state employee unions control everything in Hartford. Don’t expect anyone to stand up to them, least of all Ned Lamont. Lamont is rumored to want that third term very badly. He needs the unions to provide the foot soldiers essential to successful campaigns – to man phone banks, to stuff envelopes with campaign literature, to knock on doors, and attend rallies to create the illusion of widespread popular support. So, in return, Lamont will continue the state employee gravy train.

Of course, what you will hear on Wednesday in Lamont’s budget address will be all about “hard working” state employees (who are only required to show up at the office one day a week) and his mantra that the state needs to hire “the best and the brightest,” as if state government employees are designing and building the next generation of advanced nuclear submarines in Groton.

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