Selectmen, BOE Endorse Teacher Pension Resolution
In back-to-back meetings May 6 and May 7, the Boards of Selectmen and Education each endorsed a resolution opposing Governor Ned Lamont’s plan to shift financing the state’s teacher pension burden to certain communities that would likely include Newtown if the measure is approved by state lawmakers this session.
The idea, first floated by former Governor Dannel Malloy in 2017, was reintroduced in a modified form by Gov Lamont and a number of Democratic legislators early in the current session. The state-run pension fund for public school teachers was 58 percent funded in 2018, and it had accrued an unfunded liability of $13.2 billion, according to the latest valuation report.
First Selectman Dan Rosenthal has been vocal about his concerns that the state could unceremoniously and immediately shift a substantially greater burden upon Newtown taxpayers, who will then be obligated to shoulder the added expense of mandated teacher pension contributions.
The first selectman’s concerns are amplified because he is hearing no substantive talk out of Hartford about making the state teacher pension system sustainable without shifting not only the year-to-year contributions, but funding the existing shortfall, onto local taxpayers.
“From the very beginning, this pension question has been a pressing concern,” Mr Rosenthal told The Newtown Bee following the school board’s decision to unanimously support the town resolution.
“Our role is supervising the local budget and the obligations of local property taxpayers. This [proposal] has very grave potential consequences to local taxpayers,” Mr Rosenthal said, “Especially given the apparent lack of interest currently in reforming the system.”
The first selectman said tapping revenues from local property taxes to fix a short-term funding deficit in the teacher pension system absent structural reform will create a situation where local municipalities like Newtown that are deemed to be able to afford the contributions become “the goose that just continues to provide golden eggs without any assurances from Hartford that they’ll do the heavy lifting and better structure the program.”
To add to the worry, Mr Rosenthal believes since this is not an initiative that a lot of elected lawmakers will want to publicly support, it will end up passing as a component of a much larger budget bill that will receive enough support to pass. Current support for the proposal appears to rest on state Democratic officials, while Republican lawmakers are generally standing up or speaking out against it.
“The governor hasn’t seemed to back down from the proposal, so I guess this is the way things move through the sausage factory — people are wary about getting their fingerprints on it now, but I’m concerned it will end up as an unintended consequence of a majority of lawmakers supporting an overall budget bill,” Mr Rosenthal said.
Echoing BOE Memo
After discussion at the Board of Education’s May 7 meeting, school board members present unanimously approved support for the selectmen’s resolution.
The local resolution follows and borrows some language from a memo dispatched to Hartford several weeks ago by the Board of Education, which stated in part, “The Newtown Board of Education recognizes the significant fiscal challenges facing the state, yet the requirement that local communities contribute towards the normal cost of the Teachers’ Retirement System (TRS) will add to property taxes and should not be part of the solution.”
The school board memo notes, “As proposed, at least 25 percent of the ‘normal’ teachers’ pension costs would be shifted to local communities. And for many towns, considerably more than the 25 percent will be required, since the bill also calls for towns that pay teacher salaries above the median to pay an additional percentage on top of the 25 percent.”
The school board stated that such action would amount to “an unfair surcharge for many municipalities, in that the normal cost already reflects the costs associated with higher salaries. Paying an additional percentage for salaries above the median would be an added penalty.”
As reflected in the selectmen’s resolution, the Board of Education memo points out that “teacher’s salaries are largely determined by the bargaining climate in the state, salaries in surrounding towns, binding arbitration and the cost of living — influences that are beyond the control of the local districts, making the penalty seem arbitrary.” Since the TRS is managed and negotiated at the state level, local municipalities and regional districts have no control over the fund itself.
The selectmen’s resolution reinforces the point that “addressing revenue without reform is problematic and adds to the concern that the proposal will place an uncontrollable expense to our local budget.”
The document unanimously backed by the selectmen and school board concludes:
“Let it be resolved that The Newtown Board of Selectmen cannot support assuming an open-ended obligation for which the town does not have a role in negotiating the benefit structure nor managing the investment outcome. It is the position of the Newtown Board of Selectmen that the TRS proposal as it stands will negatively impact education and other municipal services. Local budgets are subject to annual referenda, and there is only so much taxpayers will support. Important local objectives would necessarily be reduced or eliminated to pay an invoice to the State of Connecticut that we have no control over.”
A Little History
Public school teachers in Connecticut have an independent retirement system because teachers in the 1950s decided not to join Social Security when given the opportunity.
Teachers and school districts make no contributions to the Social Security system and teachers cannot collect benefits based on their work for a school district. Instead, the state provides teachers with retirement benefits through the Teachers’ Retirement System.
When Congress passed the Social Security Act in 1935, federal, state, and local government employees were excluded from mandatory coverage. In the early 1950s, the law was amended to allow state and local government employees to voluntarily elect in a referendum to receive coverage.
Connecticut teachers voted against joining the Social Security system. In 1959, at the request of the Connecticut Education Association, the General Assembly passed a state law prohibiting another referendum.
A 14-member Teachers’ Retirement Board administers the state-run pension fund.
Before 1979, Connecticut paid retirement benefits out of each year’s state budget. Then the state adopted an actuarially designed plan that covered current benefits and paid down the unfunded liability, but state leaders continually paid less than deemed necessary.
The unfunded liability from the state government skimping on its annual pension contributions continues to put significant pressure on the state budget as funding requirements increase over the coming years. Teachers, on the other hand, made their statutorily required contributions.
Part of the problem stems from overly optimistic rates of investment returns. The shortchanging of the state’s annual contributions also meant less investment earnings. If nothing is done, the cost of the Actuarially Determined Employer Contribution to the pension fund has been projected to rise to more than $3 billion in 2032. In contrast, this year’s ADEC, as it is called, is $1.4 billion in a $20.8 billion budget.
The legislature’s Office of Fiscal Analysis projected a possible outlay of $3.7 billion in 2032 between the normal cost of retirement, paying down the unfunded liability and debt service. The office calculated that costs will increase $254 million over the upcoming two-year budget cycle.
Associated Press content was included in this report.
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