To the Editor:
Hamden Mayor Jackson’s proposed budget is mostly rational.
It is very kind to the workers by giving full contractual increases and no layoffs; although that depends on a successful Early Retirement Incentive Program yet to be offered. (I hate these programs because they save money this year but increase pension costs down the road. Isn’t that what the politicians always do?) For the taxpayers this budget is not benign. The mayor is asking for a disappointing 6 percent / 2.1 mill tax increase.
The budget would appropriate $1.18 million more for the schools and give small increases to various town departments. It includes about a million more for debt service and predicts, perhaps optimistically, a growth of nearly two million in state and departmental revenues. The lion’s share, over $8 million of the $11.25 million jump, would go to benefits. These include $2 million more for healthcare and over $6 million more to the severely under-funded pension plan.
The proposed $10 million direct contribution to the pension fund should be considered a gesture of good faith rather than a solution. If sustained at that elevated level the fund would still be depleted in 6 years or so. Any permanent pension solution must include a large infusion of capital for investment and would depend on optimistic stock market performance to be effective. Considering the recent market crash and volatility this idea could be risky. The infusion would likely come from Pension Obligation Bonds (POB).
The plan is currently under-funded by $242 million. The new town charter allows pension bonding to a level of 4 percent of the budget but due to the town’s poor credit rating, the maximum possible bond issue would only cover about half that needed for full funding. At the 4 percent level, the town’s annual debt service would increase by $7.7 million, about 2 mills, which would last for the full term of the bond!
The Mayor judiciously avoided pension bonding for the moment. That increase on top of the direct contribution above would have been totally unpalatable. On the other hand, the town should never allow such an escalating liability to become pay-as-you-go like the health plan which has increased tremendously through the years. This year’s health care jump is “only” 6.2 percent.
Hamden employees have gotten a pretty good deal for many years. They enjoy excellent salaries, a short workweek and a benefit package that would be envy of most workers. There have been minimal layoffs and few long-term concessions. After last year’s 10 percent mill increase, Hamden taxpayers now pay the seventh highest tax rate in the state. The proposed budget could move us even higher on that dubious list. It is time to give the taxpayers some relief, particularly from the huge pension and health care obligations. The workers must respect the plight of the citizens who support them by compromising their glorious retirement benefits.
My belief is that the over-generous retirement promises of the past must be renegotiated now before any big commitment like bonding is made. One simple idea might ask the employees / unions to match POB-funded contributions to the pension fund, dollar for dollar, with benefit reductions. For example, if the town were to bond $100 million, concessions would be given to that same value. Down the road, if the fund needs more money, that cost should be shared similarly. That way, plan beneficiaries would assume half the risk that the town now absorbs fully.
My simplistic proposal to enact this deal would be as follows:
- Service requirements and benefit formulas would be unchanged from the various contracts.
- No one would be allowed to commence pension payments before at least age 60 or even up to 65. Anyone choosing to start collecting prior to that age would suffer a 5-7 percent reduction in benefit for each year early. This is similar to private pensions and Social Security, which are based on retirement at 65 or older.
- Cost of living adjustments (COLA) would be eliminated.
The town’s big commitment to retirement health care is the other leg of Hamden’s generous plan. My simple solution is to require anyone retiring before age 65 to pay most of their premium out of pocket until reaching that age. This change should be considered at the same time as pension reform.
Actuaries can determine lifetime value of concessions to match the expected lifetime value of the POB infusion. Based on their calculations the pension collection age and the health care contribution can be adjusted. This scheme would have the biggest impact on the Guardians, which is fair considering they have always had the sweetest retirement deal.
The only way this plan or any other could be implemented would be if the Administration and the Council show their resolve to get matching concessions before any long-term pension funding is made. I suggest that the Council pass a resolution making that intention clear.
The escalating long-term cost of pension and health care is unsustainable.
It simply isn’t fair to ask the taxpayers to bear so much cost and all the risk.
The town workers should compromise their long-term benefits now.