Policy Documents

Connecticut’s Public Pension Liabilities: How Big Are They and What Can Be Done About Them

Connecticut Policy Institute –
September 14, 2012

Connecticut’s long term pension and healthcare liabilities for its public employees are the sleeping giant of state policy challenges. When calculated using private sector accounting methods, Connecticut has more than $60 billion of unfunded liabilities across the state’s three main pension benefit funds and its retiree healthcare benefits fund. When combined with Connecticut’s roughly $20 billion in bonded debt, this is more than $80 billion of total state debt – nearly 40% of state GDP and the third highest debt per capita in the country. This is no modest distinction, as many other state governments have gained more notoriety than Connecticut for their profligate accumulation of debt.

Debt that is due years in the future rarely generates the urgency of more immediate problems. But Connecticut’s debt constitutes an emergency by any reasonable standard. Responsible leaders will treat it with a high sense of urgency because if Connecticut does not soon address its debt problem, the consequences for the state’s residents will be very real and very painful, including future tax burdens damaging to the economy, cutbacks in essential services, default on state obligations, or a combination of all three. A liquidity crisis also looms if the debt markets lose confidence in Connecticut’s ability to get control over its fiscal challenges.  

Damage is already being done. Moody’s recently downgraded its rating of Connecticut bonds, and businesses are investing less in the state and hiring fewer workers than they otherwise would. When combined with the federal debt, Connecticut’s debt-GDP ratio exceeds the level at which economists believe government debt retards economic growth. Tellingly, Connecticut’s jobs recovery rate since 2009 has trailed that of the United States as a whole.

To avoid damaging its economy further and letting down those who rely most on the state’s services, Connecticut must act quickly to reign in its public employee pension liabilities. The first step is acknowledging the magnitude and seriousness of the problem, which the state has not yet done. For example, Connecticut’s comptroller uses pension accounting methods that the federal government forbids in the private sector and that probably understates the magnitude of the state’s liabilities by over $20 billion.

This paper attempts to show a more accurate accounting of Connecticut’s pension liabilities and to articulate the options the state has for reducing them. It also proposes a means for making the state’s pension obligations for new workers more affordable to prevent a similar crisis from emerging in the future. These solutions are not without costs to public employees and other citizens of the state. But the aggregate cost of the solutions is far less than the cost if Connecticut’s pension liabilities are not aggressively reduced.