CT workers enjoy healthy raises despite ‘fiscal guardrails’

Connecticut has withheld more than $7.5 billion from core state programs since 2022 to pay down pension debt and build reserves, a total that exceeds 30% of the entire General Fund.

But even as advocates for education, health care and other core programs have heard officials say government must prioritize fiscal health, they’ve watched over the same three years as 40,000-plus state employees have enjoyed, on average, 4.5% annual raises that often outpace the private sector and sometimes inflation.

As Connecticut began a new fiscal year two weeks ago projecting to save another $1.2 billion to beef up its finances, state workers are receiving their fourth straight 4.5% hike (that includes a 2.5% general increase and a step hike, which typically adds 2 percentage points of value, for all but the most senior workers).

Since the budget controls were enacted in 2017, one provision alone has barred legislators from spending more than $9.5 billion in state tax revenues on core services — or on anything else — on the grounds that these revenues were unstable. Analysts say this volatility adjustment savings program will keep grabbing big dollars — at least $800 million per year — through 2028.

But collective bargaining rules allow unions to cite these receipts — and allow arbitrators to consider them — when calculating whether the state can afford to pay healthy raises.

Some say that distinction and its potential consequences was unanticipated when the guardrails were crafted seven years ago.

GOP leader: Workers are ‘eating at the trough first’

“State employees benefit from their pensions becoming more solvent” as debt is paid down, said House Minority Leader Vincent J. Candelora, R-North Branford. “And at the front end [of the budget process], they’re eating at the trough first.”

While some legislators want to revise the budget controls, saving less and making more available for core programs, others say it’s time to change collective bargaining rules and clamp down on pay hikes.

“The only thing that isn’t really shackled by this [fiscal guardrails system] is collective bargaining,” said Sen. Eric Berthel of Watertown, ranking Senate Republican on the Appropriations Committee.

Both Candelora and Berthel said Connecticut should reform its collective bargaining rules, a process that likely would entail both legislative action and negotiations with state employee unions.

“If we’re going to continue to make forward progress with our budgeting and being responsible,” Berthel added, “then I think everything truly should be looked at.”

Nonpartisan analysts projected raises and related expenses would cost the General Fund $121 million this fiscal year. That’s after three prior years of raises that, collectively, added more than $500 million to the state’s annual salary expenses.

With advocates for higher education, social services, mental health and child care arguing those programs are strained or even in crisis, Gov. Ned Lamont and his fellow Democrats in the legislature’s majority used nearly $700 million in temporary funds — the last of emergency federal pandemic relief grants and a portion of the last two budget surpluses — to plug funding gaps this fiscal year.

But when officials begin work February on the next state budget, those temporary dollars will be gone.

“That’s going to be a very difficult discussion,” Berthel said. “We are going to disappoint some people.”

Some legislators would scale back raises to put more resources into these and other programs. Candelora said many House Republicans want more dollars going back to taxpayers.

Lamont and legislators often tout that they adopted the largest state tax cut in history in 2023, one year after they’d approved another sizeable relief package.

But Connecticut’s last tax fairness study showed the state and municipal taxes combined effectively consumed almost 40% of the earnings of the poorest 10% of households in 2020 and 11.5% to 13% of the middle class. By comparison, the highest-earning households paid 7.3%.

And a late February analysis by Connecticut Voices for Children found the state tax cuts of 2022 and 2023 only slowed the state’s march toward worsening income and wealth inequality. Even after those cuts are applied, the poor pay more than four times the share paid by the highest-earning households, while the middle class faces one-and-a-half times the effective tax rate of the top group. Those results are worse than the ratios state officials reported after studying 2019 data.

Meanwhile, Republican legislators and others critical of the recent raises for state employees say they simply aren’t comparable with most of the private sector or always with inflation.

According to the U.S. Bureau of Labor Statistics, inflation rose 6.5% on average in 2022, and 3.4% in 2023. In mid-June, the bureau reported that inflation through May 2024 was up 3.3% .

Candelora said many Connecticut families continue to struggle and that more of the massive savings generated by the budget controls needs to flow outside of government for the guardrails to remain politically popular.

“The taxpayers need to be a beneficiary,” he said, “because otherwise, without taxpayer buy-in, this doesn’t survive.”

Unions: Workers have been under fire for more than a decade

But labor leaders say state employees also are struggling to survive economically and that this has been the case for a long time.

State employees provided wage and other concessions in 2009, 2011 and 2017 — including six years of no raises — that have played a huge role in mitigating deficits and building surpluses for the past decade (although workers did receive lump sum payments in two of the six years they forfeited general wage and step hikes).

All three concession packages also increased health care costs for workers, while two of the three tightened pension and retirement health care benefits.

Unions also allowed both Lamont and his predecessor, Gov. Dannel P. Malloy, to restructure payments into the state employees’ pension fund to help avert projected spikes in required contributions in the late 2020s and early 2030s.

Meanwhile, state government increasingly has been asking fewer workers to accomplish more.

Malloy and the General Assembly frequently relied on attrition to close deficits between 2011 and 2018, shrinking the Executive Branch workforce by 10% during that period. Unions also say Lamont’s administration has been slow to replenish staff after more than 4,100 senior workers left service between January and June 2022, more than double the retirements seen in a typical year. That retirement “tsunami,” as some officials called it, largely was prompted by new restrictions on pension benefits that took effect in July 2022.

A new report from Comptroller Sean Scanlon and the University of Connecticut’s School of Public Policy found the state has considerably more work to do to reduce pay inequities along racial and ethnic lines.

The report concluded that while government has reduced inequities in representation and pay among Black workers, the gaps have worsened for Hispanics and Asians.

Union leaders say the solution isn’t to punish increasingly overworked state employees but rather to reform an aggressive system of budget controls that saves excessively. With changes, leaders say, Connecticut could better fund core programs and workers’ wages — and still accelerate paying down its pension debt, albeit at a slightly slower pace.

“We are hopeful and optimistic that well-meaning political leaders will reform the [savings program] soon,” said Louise Williams, a professor at Central Connecticut State University, president of CSU-AAUP and a member of the State Employees Bargaining Agent Coalition’s leadership team. “As long as it stays in effect and political leaders choose not to exceed it, it will deprive Connecticut’s people and communities of the services they need. It will lead to continued service cuts, tuition hikes, and understaffing of core public agencies like our colleges and universities.”

Jody Barr, executive director of Council 4 of the American Federation of State, County and Municipal Employees, said arbitrators required to assess the state’s ability to afford compensation and benefit costs shouldn’t be expected to ignore a savings program that has captured billions of dollars.

“It’s their job to cut through the political noise of negotiations and make an impartial decision based on facts and data,” said Barr, who also serves on SEBAC’s leadership team. “Even so, public services suffer due to the volatility cap, leading to understaffed and under-resourced programs.”

Two sticky political issues at odds

The latest debate poses a particular challenge for Lamont, called by many a fiscal moderate, though some Democrats put him in the conservative category.

The governor, many moderate Democratic legislators and nearly all Republicans have been staunch defenders of the budget controls. State finances have been in the black since Lamont took office in 2019, and Connecticut has used surpluses to pay down about $7.7 billion in pension debt since 2020.

But as a Democrat, Lamont also has relied on support from labor to assist with his gubernatorial election victories in 2018 and 2022. The governor hasn’t said whether he will seek a third term.

When asked whether the governor and legislature should seek to change collective bargaining rules to reflect that a huge chunk of tax receipts no longer can be spent, Chris Collibee, Lamont’s budget spokesman, said only that “the administration has not taken a position on this matter.”

When asked whether the current system effectively prioritizes funding for raises over core programs, Collibee added that “pitting wages and benefits against other spending in our state budget is not the intent of the guardrails, nor is it their effect.”

But while top Democrats in the legislature haven’t said the system prioritizes wages, both Senate President Pro Tem Martin M. Looney of New Haven and House Speaker Matt Ritter of Hartford have warned that Connecticut must find some way to invest more in core programs. Both legislative leaders have said modest adjustments to the savings program could bolster services and still allow Connecticut to improve its fiscal standing year after year.

Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee and one of the legislature’s leading advocates for the nonprofit agencies that deliver most state-sponsored social services, also is watching the relationship between state employee raises and funds for other programs.

Osten, a former state employee union official, said agencies are understaffed and workers are hard pressed. She doesn’t favor changing collective bargaining rules but said she would scale back savings efforts somewhat.

Osten said she would introduce a bill next year that would automatically trigger increased funding for nonprofits when state employees get a salary hike.

The measure is still under development, and Osten didn’t say specifically how much nonprofit funding should grow relative to raises. But she said Connecticut no longer can ignore an industry losing more than $400 million annually to state payments that haven’t kept pace with inflation for decades.

“We should look at nonprofits as an extension of the work done by the state,” she said, noting that private workers caring for people with disabilities and patients struggling with mental illness and addiction often make little more than minimum wage. “They are a bigger part of the safety net for our most vulnerable people.”

The other co-chair on the Appropriations Committee, Rep. Toni E. Walker, D-New Haven, noted that government has been outsourcing its social programs — and benefiting from huge savings — for decades. But many other priorities, including public colleges and universities, health care and municipal aid, also struggled throughout the 2000s and 2010s.

The only solution, she said, is to redirect some of the huge savings government is amassing — otherwise it will keep weakening one priority to support another.

“It isn’t fair,” Walker added. “We’re choosing which child is going to survive, and that isn’t a balanced government.”