Connecticut has signed a tentative contract with leaders of state employee unions that will help create “significant, long-term structural reforms” to pension and benefit costs, Gov. Dannel Malloy announced Monday.
The union rank-and-file and the state legislature must approve the agreement between Malloy’s administration and the umbrella State Employees Bargaining Agent Coalition.
Malloy cited an actuarial study that projected $24 billion in savings over 20 years. The analysis said the plan produces cumulative savings of nearly $1.6 billion over fiscal 2017 and 2018 and nearly $5 billion in the first five years.
Malloy and the unions last month announced a “broad framework” of a deal.
“The agreement by the unions to move forward with a tentative contract that could save the state more than $24 billion is a promising step, clearly demonstrating that they want to be part of the solution to putting the state in a better and more stable financial position,” Malloy said in a statement.
Cavanaugh McDonald and Segal Consulting conducted the analyses on pension and health care, respectively.
His administration and lawmakers are still negotiating a fiscal 2018-19 biennial budget that has a projected deficit of up to $5 billion. Bond rating agencies have referenced budget imbalance and pension costs in a wave of downgrades over the past year.
Malloy is developing a plan to operate state government should a budget not materialize when the fiscal year ends Saturday.
Moody’s Investors Service rates the state’s general obligation bonds A1, while Fitch Ratings and Kroll Bond Rating Agency assign AA-minus ratings. S&P Global Ratings assigns an A-plus rating.
Connecticut, Illinois and New Jersey are the only states with ratings below double-A.
According to Moody's, Connecticut's high fixed costs make its budget less flexible.
"The state's payments for debt service, pension contributions and retiree health costs are among the highest of the 50 states at about 30% of revenue in fiscal 2016," said Moody's. "These costs are a significant contributor to the state's credit quality being below its peers."
In fiscal 2016, said Moody's, Connecticut's debt burden and adjusted net pension liabilities accounted for 9% and 22% of gross domestic product, respectively.
Republicans say more concessions are necessary to balance the budget. The state Senate is split 18-18 while Democrats hold a 79-72 advantage in the House of Representatives.
“A late state budget will not affect GO debt service payments,” S&P said in a commentary. While a late budget could affect debt secured by annual state appropriations, the next debt-service payment, according to the state, does not occur until September.
“As a result, we do not expect a missed debt service payment as the result of a moderate delay in passing a new budget,” said S&P.