A new study shows that Connecticut’s state employees receive the highest combined pay and retiree benefits nationwide – significantly more than what is earned in the private sector – and that the state has significantly underfunded those pension plans for more than a decade.
“Connecticut’s high and severely underfunded state employee compensation leaves the state particularly vulnerable to adverse financial and/or economic conditions. It is in the interest of the state, its citizens and active and retired state employees to reduce this risk,” wrote Andrew Biggs, who authored the report, which was released in February.
Biggs, who has a PhD in government from the London School of Economics, is a senior fellow at the American Enterprise Institute, a conservative think tank based in Washington DC. The report was overseen by The Townsend Group International, LLC, a financial strategy firm in Greenwich, and commissioned by the Nutmeg Research Institute.
Biggs discussed the findings in his report during a Zoom conference call with a number of state representatives — about 22 Republicans and three Democrats — that was hosted by Red Jahncke, president and CEO of The Townsend Group, on March 22.
Reached by phone, Brendan Cunningham, professor of economics at Eastern Connecticut State University, rebutted several points in the study, and questioned the “notion of comparable private sector jobs.”
“For example, in what sense is there a comparable private sector judge?” he asked. “And the same with state police, what’s the private sector version?”
The study looked at active state employee compensation — including accrued retirement health benefits known as Other Post Retirement Benefits, or OPEBs — in all 50 states and compared it to private sector employees in comparable positions using data from the Census Bureau and the National Income and Product Accounts, known as NIPAs.
Biggs said the data showed the average salary for Connecticut state employees from 2017 to 2019 was a little over $64,000 while the average private sector worker with similar characteristics to state employees earned a little bit over $68,000 — a 6 percent difference.
“But it’s really in the benefits where the real action is,” he said.
The average Connecticut state employee accrues more than $14,000 in future pension benefits each year, plus more than $16,000 in future retiree health benefits for each year that they work, according to Biggs.
Pensions plus retiree health benefits add up to about $30,000 a year in extra compensation for state employees – but the package, including health coverage the employee currently receives, totals $44,000 in fringe benefits per year, said Biggs.
That $44,000 compares to about $13,000 per year for the average comparable private sector worker, he said.
“Again, if you’re thinking about compensation for public employees, it’s all in the back. That’s where the real story is,” he said.
When salaries and all forms of fringe benefits are combined, the 6 percent salary penalty in Connecticut turns into a total compensation premium of 33 percent, he said.
California, Alaska, New York and Nevada have larger compensation premiums than Connecticut for state government employees, but all other states are lower, he said.
“In budget terms, Connecticut could save around $2 billion a year if it provided total pay and benefits that were at the market level rather than paying that roughly one-third premium that it currently provides,” Biggs said.
He said that about 10 states in the study provided total pay and benefits to state employees that were “right about on par” with private sector levels.
“For instance, Colorado pays its employees right around private sector levels, but nobody says that Colorado is a poorly run state that can’t attract employees — it’s generally regarded as a pretty well run state,” he said. “So I think the idea that Connecticut has to pay these above-market levels of benefits to attract and retain quality employees strikes me as incorrect.”
Connecticut and Illinois are the two states nationwide that have funded state workers’ pensions below 40 percent, he said. In Connecticut, the State Employee Retirement System (SERS) is only 38.5 percent funded, compared to the national average of 77.1 percent — plus, Connecticut’s retiree health care is the highest of any state and is only 6 percent funded, he said.
Biggs said that state pensions are so large that essentially state workers don’t have to save as much for their retirements.
“If you’re in the private sector, essentially you are on your own in terms of providing for retiree health care. In Connecticut state government, essentially it is all paid for and it is just a massively expensive benefit,” said Biggs.
He said that California and Illinois, which have fairly generous benefits, are not promising “anything close” to Connecticut in terms of retiree health benefits.
“So that’s a really underappreciated aspect of compensation. People pay a lot of attention to the pensions, but the retiree health care is even more generous that goes underneath the radar,” he said.
State Rep. Holly Cheeseman, R- East Lyme, who was also on the Zoom call, told CT Examiner that state employees should be rewarded fairly but not out of line with the private sector — and not in a way that compounds the state’s obligations hugely going forward.
“The trouble is when you have such a big commitment, if the time comes to make savings, it’s not going to be at the cost of the 40,000 union employees, it’s going to be at the cost of the other residents of Connecticut. And that, I think, is the issue.”
Cheeseman said the state was facing a deficit of over $1 billion in 2024.
“What happens then? As I said, it’s not going to be the union contracts that are going to be cut because we’re committed to those. It’s going to be those vital services on which everyone relies,” she said.
She said that spending is a question of priorities in government, and she believed the priority should not be giving state employees, even though they work hard, to receive among the richest benefits in the country.
“We hear a lot about fairness,” said Cheeseman, “but fairness also means spending responsibly when it comes to our state employees and not setting us up for future fiscal problems because we’ve created these incredibly rich benefits.”
State Rep. Ryan Fazio, R-Riverside, who participated in the Zoom call and spoke with CT Examiner the following week, questioned the link between higher compensation and better government.
“We can look to examples elsewhere in the country of successes, of good quality public sectors that are reasonably compensated but affordable,” he said.
There is always a worry that if an organization pays too little then it will not attract good workers, Fazio agreed, “but if you pay too much you’re going to destroy the state’s economy, which is what we’ve done,” he said. “We’ve gone too far in one direction.”
Distraction from regressive taxes
But Cunningham questioned, given the high cost of living in Connecticut, whether the greater public employee compensation meant a better quality of life compared to workers in other states.
“It’s not clear to me if we adjusted for cost of living, that this ‘higher pay’ is really all that noteworthy, given how far a dollar goes in different states,” he said.
He added that the private sector also heavily discriminates against people of color and women in terms of wages, making it an inequitable standard for the state to measure itself against.
Cunningham also pushed back on concerns about looming deficits. He said the state has been running surpluses, not just because of federal COVID funding, but because of the increased revenue from real estate and income taxes due to the influx of residents from New York.
“There is a ‘sky is falling’ contingent here in Connecticut, a lot of freaking out about the state running deficits and underfunding its pensions and then the state has money spilling out of coffers. A lot of this ends up serving as a distraction.”
More important, according to Cunningham, is a study on incidence of taxation in Connecticut that shows the highest tax rates primarily fall upon the lowest income people in the state.
“In other words, we have a highly regressive taxation system in the state — the people with the highest income pay the lowest tax rates,” he said. “So I do view these kinds of reports as a distraction from these questions of regressivity in our tax system.”
Editor’s note: The Nutmeg Research Institute is funded partly by David Kelsey, who is a primary funder of CT Examiner. The report was commissioned and completed independently of CT Examiner. Neither Nutmeg Research, nor Kelsey, played any role in this reporting.