Democratic leaders are ignoring the single biggest threat to their states
In July, Connecticut state government employees received a 5.5 percent combined pay increase on the backs of taxpayers while hundreds of thousands of people across the state remained unemployed. That’s clearly not right. Democrats insisted the governor could not do anything about it, despite the state of emergency, because the raises were part of a collective bargaining agreement.
It does not bode well for Connecticut taxpayers that our elected officials refused to even try to delay raises for their own employees at the height of a crisis. The choices for fiscally strapped states like Connecticut, Illinois and New Jersey will only get harder over the next few years.
Here is the dilemma: These three states have committed to unsustainable pension, insurance and debt obligations at the behest of the special interests. And while New York state’s pension is currently well-funded because of its high taxes, it could also face trouble meeting its contractual obligations if the post-pandemic exodus from the city keeps growing.
The debate over this looming crisis promises to be ugly. Already different camps are emerging: Senate Democrats, for example, are advocating large federal bailouts of the states, while others, including Senate Majority Leader Mitch McConnell, want to allow states to use the federal bankruptcy code to restructure their obligations.
But federal bailouts only excuse fiscal irresponsibility and encourage more of it. Meanwhile, putting federal courts in charge of state spending subordinates states to the federal government in a way that offends our entire system — even if states have the option to participate.
The best solution is the simplest: State legislators must directly address the problem by adjusting their obligations in order to achieve solvency and long-term prosperity for their constituents.
Restructuring pensions can actually be done in a responsible way that keeps former and current state employees well-compensated and avoids massive layoffs, program cuts and tax hikes.
Breaking agreements totally or recklessly could be considered a violation of the Contract Clause of the US Constitution. But marginal alterations that make the state solvent and viable are permissible. One fix is to reduce the cost-of-living adjustments for pensions, which automatically increase annual payments for recipients. Another is to force state employees to contribute more to their own pensions and health insurance, closer to the kinds of contributions private-sector employees have to make.
States should also switch from defined-benefit plans to defined-contribution plans, which are the norm in the private sector. State workers should not be able to add ballooning overtime hours to their salaries at the end of their careers to calculate future pension payments.
Finally, states should explore cash buyouts of their employee and retiree pensions, so workers get cash in exchange for the elimination of future pension payments.
These are just a few measures that have been adopted across the country in recent years.
According to public finance expert Jim Spiotto, 46 states reformed their pension systems in some way from 2010 to 2018. Of the 25 major court challenges to those reforms since 2011, 21 of the reforms were upheld. The Supreme Court has maintained several times that state governments may alter contracts to deliver vital services and maintain the general welfare of their people. Many of these states’ reforms were upheld under exactly that doctrine.
Of course, government employee unions spend money to elect pliant politicians who will defend the status quo. Their influence depends on it. Meanwhile, the middle class and poor suffer tax increases and cuts to vital services that kill jobs as states keep funding these special interests.
Citizens of states like my home of Connecticut should not be sentenced to another generation of higher taxes, falling wages and outmigration. Their elected representatives need to be brave, stand up to special interests, and fix the biggest problem they face. It will not be easy, but it is the right thing to do.
Ryan Fazio is a candidate for Connecticut’s 36th state Senate District.
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