Conn. Gov Vetoes Budget over Pension Concerns

Gov. Dannel Malloy said the budget would eliminate hundreds of millions of dollars in pension fund contributions.

Connecticut Gov. Dannel Malloy has vetoed the $40.7 billion biennial budget passed by the state’s general assembly, saying it “adopts changes to the state’s pension plans that are both financially and legally unsound.”

Malloy said the proposed budget attempts to shirk the state’s pension fund obligations by eliminating $144 million in pension contributions this fiscal year, $177.8 million next year, and hundreds of millions of dollars in the following years “solely by seeking to limit the state’s authority to enter into future agreements over pension benefits,” Malloy said in his veto letter. “This budget grabs ‘savings’ today on the false promise of change a decade from now, a promise that cannot be made because no legislature can unilaterally bind a future legislature.”

The Democratic governor said the bill, which was supported by Republican lawmakers, makes unilateral changes to vested pension benefits, and would risk a constitutional challenge, as well as exposure to potential litigation, and hundreds of millions of dollars of liability.

“The state is already paying hundreds of millions in penalties for a similarly foolhardy approach taken by a previous governor,” wrote Malloy, adding that “the potential financial consequences of this maneuver increase exponentially when used as the basis to avoid meeting our obligations to fund our pensions.”

Malloy argued that prior administrations and legislatures have consistently underfunded the state’s pension obligations, which he said has amassed an unfunded debt obligation that has “increasingly stymied our ability to make the key investments necessary to strengthen and grow our economy.”

He also said the budget diverts teachers’ pension contributions to the general fund, but without offering a solution to reform funding for the teachers’ pension system. This could leave “future taxpayers at the precipice of a fiscal cliff that could reach as high as $6 billion,” he wrote. “The diversion of the teachers’ retirement contributions from the teachers’ retirement fund creates significant potential tax consequences for the employees and jeopardizes the tax status of the entire retirement fund.”

Malloy urged both parties to work together to negotiate a new budget, and warned that failure to reach a deal soon could risk federal approval for $343.9 million in increased provider tax revenue, and $366.5 million in federal Medicaid reimbursement, which he said are critical to balancing the budget and increasing reimbursements to providers.

“This budget is unbalanced, unsustainable, and unwise,” said Malloy. “Through these fiscally irresponsible changes, this budget would fail to move the state closer to fully funding our pension obligations, a stated goal of legislative leaders in both parties.”

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