Governor Lamont rolled out a stealth hiring freeze last week. There was no press release. Lamont’s office declined to comment, “except to emphasize that the new hiring policy is not a ‘freeze,’” according to CT Insider.
Why the stealth? Because Lamont seems to have realized only now, if at all, that he has allowed state employee labor costs to skyrocket. On his watch, unionized state employees have received a 33% pay raise, which has been widely covered in the media and, not surprisingly, elicited calls for a wage freeze.
The sleeper has been the hiring binge that Lamont has been on. The unionized workforce has swelled by about 5% over the last two full fiscal years, according to figures in the latest pension fund valuation report as of June 30, 2024.
That’s a double whammy. The total payroll cost for unionized state employees has ballooned $700 million from $3.8 billion in fiscal 2022 to $4.5 billion in FY2024, or 18% in just two years? That would be an embarrassment to anyone claiming to be a fiscal moderate. Thus, Lamont’s silence.
Rate-volume analysis is a fundamental part of the curriculum at business schools such as Yale. How did Lamont fail to anticipate the combined impact of six years of robust annual wage hikes (rate) and his recent hiring binge (volume)?
The labor cost for the whole workforce (union and non-union) is running at a $5.8 billion annual rate in the current fiscal year (FY2025), based on data from the Open Payroll database maintained by the State Comptroller.
Apparently, the Administration has only awakened to this explosive growth because the current fiscal year budget is becoming seriously imbalanced. That creates a constitutional problem: the constitutional spending cap requires a balanced budget.
OPM Secretary Beckham admitted as much, saying the freeze and other measures were necessary “in order to ensure that we comply with this constitutional requirement…”
Yet, sleepwalking through the explosion in labor costs is inexcusable. If the Administration was not paying attention on it own initiative, Dan Haar of Hearst Media provided a warning over a year ago in December 2023. He wrote an article entitled “CT state hiring is up sharply.” Haar focused on what is called the “executive payroll,” but the trend applies across the whole workforce.
Haar’s words were prophetic: “What we’ve seen over the last 15 months [through September 2023] amounts to an astounding pace of onboarding, as the HR people call hiring…” He asked rhetorically “what does this spate of job-filling mean for the next few years?”
Now, we know.
This is of grave concern for various reasons. First, unions want to grow membership, which means they want the state to keep hiring and hiring. They have had wild success in this endeavor, obviously running circles around Lamont. We will find out whether they have outbargained him again when the new SEBAC contract is announced in the coming weeks.
Second, the constitutional spending cap that Beckham referenced is 3.96% this fiscal year. So, when the largest expense item in the budget, the state payroll, has been growing 18%, it crowds out virtually all other allowable spending. Literally, Lamont has led the state into a dead end alley where it cannot deliver services to citizens because it has little spendable money left over after paying state employees.
Third, Democrats have been clamoring about this spending squeeze, but, mistakenly, blaming it on the fiscal guardrails.
Much of the debate about the fiscal guardrails forgets their purpose and misconstrues the “surpluses” the state has enjoyed recently. The purpose of the guardrails is to keep state spending in line with the capacity of the state’s anemic economy, which has not produced the recent surpluses. The surpluses are separate and distinct; they derive predominantly from the stock market in the form of taxes on gains enjoyed by state residents.
Absent those stock market gains, the state would be in dire straights, and, soon, we may be absent those gains. That the stock market rampage has lasted six years, does not make it permanent in any sense. The stock market has fallen significantly recently. If the recent decline does not turn into a bear market now, it will at some point. The market does not rise forever. Now is not the time to abandon the Volatility Cap that captures taxes on the gains or any of the other guardrails.
Yet, the guardrails will only keep overall state spending in line with the state economy. They will not prevent state employee pay from crowding out all other allowable spending. Only pairing a wage freeze with Lamont’s new hiring freeze will accomplish that.
As the old song goes, the two freezes “go together like a horse and carriage.” Indeed, they are mutually reinforcing. Without the need to recruit, there’s absolutely no need to offer premium wages, as indeed there never was.
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.