Hold Your Noses And Take The Deal

The deal struck by Gov. Dannel P. Malloy and the state employee unions bargaining group could have been better. It should have been better. It still promises benefits that are out of proportion with what public employees receive in other states, and it guarantees them for too long.

But it’s the only deal being offered, and despite its price tag, it goes a long way toward fixing some problems with the state budget. The state unions and legislature should approve the contract. If the union membership votes it down, or if the legislature declines to vote on it and delays its onset into next year, the state might find something awful behind Curtain No. 2.

Mr. Malloy and the union leadership managed to find a workable if imperfect middle ground that will help solve the immediate budget crisis and put the state on more solid footing down the road. An independent actuarial analysis predicts the deal will cut spending by $24 billion over 20 years and fully fund the pension obligations by 2047.

At this point, unfortunately, it’s unlikely a better deal will come along. The unions didn’t have to agree to renegotiate. They could have kept the current plan in place and bet that in 2022, when the current benefits contract expires, negotiations or binding arbitration would go their way. Evidently, the prospect of job security for a few more years seemed to be a better bet.

The key components of the deal are the unions’ contract extension from 2022 to 2027, which the unions wanted, along with a three-year wage freeze and less generous benefits for new employees, which the governor wanted.

State workers are classified into four separate “tiers,” or benefit levels, and each tier has sublevels. Today there are 1,508 Tier I employees, and their average salary is nearly $98,300, according to figures from the governor’s office. Most have about 34 years of service and are around 60 years old. This is the group that is expected to retire soon.

Most Tier II employees — all 34,736 of them — earn slightly less money. Their average salary is about $80,000, and the average age ranges from mid-40s to mid-50s. Tier III comprises 13,775 employees whose average salary is $57,527. They are younger on average and have not been employed as long.

The key to the deal is the creation of a new Tier IV, which nearly all new hires will fall into and remain in throughout their employment. They will contribute more to their own retirement, including a new defined contribution portion. That’s a great move, and it’s wise of the unions to agree to it.

Three years of wage freezes now will accumulate into the future, as employees who had been expected to see raises every year will be making less money every year down the road. That is a big deal. It allows the actuaries to predict “savings” — actually less spending — of nearly $500 million a year, when future salaries and benefits are taken into account.

Other major “savings” or spending cuts include the shift to Medicare Advantage plans for all retirees, which will eventually save hundreds of millions every year, and increased employee contributions to pension plans. By 2037, analysts predict the state will spend an estimated $427 million less for Medicare Advantage plans than if the current contract were to continue.

There are other features of the deal that will encourage workers to retire before 2022.

Let’s face it: For current workers, this is a good deal indeed. But as they retire, the new workforce will be significantly cheaper. The unfunded portion of the state’s pension obligations will slowly decrease to zero, and payments meanwhile will be more affordable.

That’s a solid outcome in principle, even though the contact extension is worrying, the timeline to a fully funded pension plan is long, and the givebacks aren’t as much as they could have been.

It is important to note that the average annual payment for Connecticut pensioners, when teachers and judges are included, is the highest in the nation, according to U.S. Census estimates released last month. The contract deal and its new Tier IV level will help bring high pensions into alignment, but it’s going to take a very long time and cost billions every year — billions that could have remained in the pockets of hardworking taxpayers who aren’t in public unions.

But at least it’s is a step in the right direction. Now we just have to hope that this deal remains affordable to taxpayers. The key to that is new jobs in Connecticut, new revenue and new residents. State leaders must invest in job growth and reverse the outmigration trend by lowering key tax rates and by keeping spending in check.

Unions and legislators: Take the deal. Don’t risk what’s behind Curtain No. 2.