Just two days after Wall Street ratings agency Moody’s downgraded Connecticut’s bond rating over concerns about the state’s unfunded pension liabilities, Gov. Dannel P. Malloy unveiled a proposal Monday to fix the system that he says could save taxpayers billions of dollars over the next 20 years.
Malloy’s plan includes increasing annually the amount of money the state spends funding the pension plan by $125 million.
In fiscal year 2011, the state allocated $926 million to fund the pension plan.
Malloy said the more aggressive contributions, which would require approval from the state employees union and retirement commission, would fully fund the pension plan by 2032, and also save state taxpayers $6 billion over the 20 years.
Under the current contribution plan, the state would have to make a one-time payment of $4.5 billion in 2032 in order to reach full funding.Â
Malloy’s proposal would ensure that the state never spends more than $2.1 billion in any fiscal year to meet its unfunded liabilities.
“I made it clear from the day I took office that I am committed to ending years of bad financial practices and getting the state’s fiscal house in order,” Malloy said. “We have made enormous progress on that front, and in doing so we’ve begun to stabilize the state’s finances. That’s one reason we saw a net gain in jobs last year for the first time in four years, and why unemployment is at its lowest point in more than two years and heading down. But there is more to be done on this front.”
Connecticut has one of the largest unfunded pension plans in the country, which has stoked the fears among those in the investor community. Moody’s downgraded the state’s bond rating on Friday citing the unfunded pension liability as a major concern.
Currently the state has assets that cover less than 50 percent of the state’s pension obligations.
It’s not clear where the state would find the extra funds to pay the higher benefit contributions, but Malloy said it would not be paid for through revenue increases.
It will likely mean Malloy will have to shift the state’s spending priorities and make cuts in other parts of the budget, which could already be in a nearly $90 million deficit despite the largest tax increase in Connecticut history that took place last year.
Malloy will unveil his adjusted two-year spending plan on Feb. 8 at the start of the new legislative session.
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