Fiscal Stability Commission Refines Its Report Following Election

By Christine Stuart

HARTFORD, CT — The Commission on Fiscal Stability and Economic Growth, a group which no longer exists, wants to remain relevant with a modified report they say reflects the reality of Connecticut’s fiscal condition.

In March before their formal status ended, the 14-member commission headed by Robert Patricelli and Jim Smith made 35 recommendations including a reduction in income taxes, an increase in sales and corporation taxes, a $1 billion reduction in annual operating expenses, and an end to collective bargaining for benefits.

However, even though their status ended with the submission of the report, some members continued to meet as private citizens, review response to the report, talk with key officials, and seek the assistance of outside experts.

The result was a new report, which makes similar recommendations, in some cases with more detail. The original report presented more than two dozen proposals, but the second report released Wednesday focused on the top six.

Patricelli and Smith said the new report is “more focused, and presents more specific recommendations,” but, it still doesn’t say where the legislature should find $1 billion in spending cuts or enhanced revenue collections. It simply calls for them to hire a consultant.

The Office of Policy and Management accepted bids for a consultant, but ended up not hiring one because there wasn’t enough money in the budget.

The new report also pared back its original tax reduction proposal. In the first report the commission proposed a $2.1 billion reduction in personal income taxes, repeal of the gift and estate taxes, and paying for it all with an increase in the sales tax rate, a new business payroll tax, and a broader sales tax. In the report it released Wednesday, it calls for a small reduction in business taxes and a reduction in the top personal income tax rate from 6.99 percent to 6.7 percent.

Wednesday’s report also gives some deference to Gov.-elect Ned Lamont on collective bargaining by making recommendations should he succeed in getting labor to open the labor contract, which doesn’t expire until 2027.

The original report called for eliminating collective bargaining and giving the legislature the power to approve labor contracts. The proposal likely would have ended up in a legal battle.

The new report calls for raising the employee contribution to the State Employee Retirement System to 6 percent of pay, funding most of that by a one-time 2 percent pay raise in 2020, instead of the currently scheduled 3.5 percent pay raises in that year and 2021 It also calls for removing overtime from pension calculations and raising teacher contributions to the Teacher’s Retirement System. Additionally it recommends using asset transfers to pay down up to $16 billion in unfunded liabilities.

It also trotted out one new proposal.

The report says Connecticut should offer a $5,000 per year scholarship for up to 4,000 students per year to any Connecticut resident to attend a four-year public or private college or university and majors in a STEM or health field. The estimated cost of the program would be $20 million for the first year, rising to $80 million and 16,000 students enrolled in four years.

It would be paid for with bond funds and it would pay for itself in terms of expanded Connecticut payroll.

But it’s unclear if policymakers will listen.

Earlier this year, the General Assembly adjusted the budget and adjourned on May 9 without making any changes recommended by its first report. The commission argues the major provisions of the report could not have been expected to be enacted in the short 2018 session.

Then there was an election and many members of the commission, including Patricelli and Smith backed Republicans.

Patricelli, Smith and their wives maxed out contributions to three Senate Republican leadership PACs and two House Republican leadership PACs. Patricelli’s wife Margaret gave $3,500 to Lamont’s campaign, and she also gave $4,000 to two Senate Democratic leadership PACs.

Democrats won big earlier this month and expanded their majorities in both the House and the Senate.

“Any political activity had zero to do with the work of the commission,” Smith said. “Anything we advanced on behalf of the commission was strictly A-political.”

Patricelli and Smith are both retired and they stayed involved in the project, but they said the rest of the members of the commission unanimously supported the second report, which they briefed House Speaker Joe Aresimowicz, House Minority Leader Themis Klarides, and Senate Minority Leader Len Fasano on earlier Wednesday. 

“Report 2.0 is entirely the work of a group of private citizens, exercising their civic responsibility,” the report states.

Incoming state Sen. Matt Lesser, D-Middletown, said he thinks the chairs of the commission made some strategic mistakes.

He said it’s important to get input on public policy, but voters rejected the commission’s ideas in the first report, which were “perfectly calculated for a Stefanowski administration” at the ballot box.

He said the meat of the initial proposal was “a view of growing economy by punishing middle class and benefiting top earners.”

Rep. Roland Lemar, D-New Haven, agreed.

“It’s nice and potentially helpful that they want to continue to be relevant, but when they decided to take partisan sides in the campaigns their credibility was compromised,” Lemar said. “They certainly made it harder for themselves to garner support as an entity.”

Smith maintained it was a nonpartisan report intended to make policymakers aware of the depth of Connecticut’s fiscal problems.

Greg Butler, executive vice president and general counsel for Eversource, and a member of the commission said at least seven members of the commission are involved in various ways with the Lamont transition.

“Our job is to offer ideas,” Patricelli said. “We have no legislative or political power of any kind. We’re trying to get people to face up to the problems and negotiate the solutions.”

Smith said they’ve been working on refining the proposal over the past several months and did not make changes to it to reflect the new political reality of a Democratic governor and Democratic majorities in the House and Senate.

“We were not swayed by a political calculus,” Smith said.

Lamont said he appreciates the work that went into the report. 

“With my transition team, I am thinking through a wide range of possible solutions as we craft a budget that will prioritize long-term economic growth and fiscal stability and put Connecticut on the right path forward,” Lamont said in a statement.

Butler said some of what’s in the new report was just their continued learning beyond the initial few months they had to pull together the first report.

The most controversial portion of both reports involves the changes to employee contracts.

Labor unions have been vocal about their disgust for the commission calling them the “Let Them Eat Cake Commission.”

The proposal they made Wednesday asks Lamont to re-open the State Employees Bargaining Agent Coalition Agreement and renegotiate policies that apply to both active and retired state employees.

Retirees account for over 70 percent of the annual amount the state must contribute to the pensions and other post-retirement benefits. They said retirees should share some of the impact of the benefit concessions of active workers. It also believes the Tier IV hybrid defined contribution plan is not competitive and the state should actually contribute one or two percent more.

Sal Luciano, executive vice president of the AFL-CIO, said the “Let them eat cake commission strikes again.”

He said it’s ridiculous to think there’s $1 billion to cut from the state budget. He also said there’s no reason to exacerbate Connecticut’s problems by reducing the rate of investment return on the pensions from 7 percent to 6 percent, which is closer to the 5 percent return Connecticut has been getting.

Luciano said some of the underlying assumptions in the report are simply wrong. He said pension calculations for the new Tier IV employee is based on all the years of service and it’s no longer based on the last three years, which are the highest. He said the 2011 deal spread the pension calculation over five years.

“They just continue to comfort the comfortable,” Luciano said. “While going after everybody else.”

He agreed that they should be talking about moving over assets like the Connecticut Lottery to help stabilize the Teachers Retirement System. Outgoing State Treasurer Denise Nappier made the proposal last week to the Pension Stability Commission.