For the first time ever Connecticut is making an additional contribution to its pension fund to help pay down some of the unfunded pension liability.
“We have exceeded for the first time in Connecticut's history the 15% volatility cap threshold that allows us and makes it possible today, as Treasurer (Shawn) Wooden indicated, to make a historic deposit,” Gov. Ned Lamont’s Budget Director Melissa McCaw said.
The volatility cap was passed in 2018 and it says if revenue from parts of the personal income tax exceeds $3.19 billion it will be deposited in the Rainy Day Fund, and anything in excess of that will be used to pay down unfunded pension debt.
State Treasurer Shawn Wooden said the state will deposit $60 million into the state employees retirement fund.
“No matter how dysfunctional Washington is we have some control over our own future going forward and that makes a difference in the near term,” Gov. Ned Lamont says.
But Connecticut continues to have more debt per person than almost any other state in the country. And some may argue that $60 million isn’t a lot when compared to the tens of billions of dollars of unfunded pension liability.
“But it’s directional and that’s really important. For a state that’s done nothing but kick the can down the road and borrow and expect the next governor and the next governor to pay for it. We’re making a down payment today,” Lamont said.
Lamont said this announcement means the state can borrow money at a lower interest rate because Wall Street sees that Connecticut is getting its fiscal house in order.
“A $60 million payment to the unfunded liability will yield about $5 million annually in savings over the 25-year period,” McCaw says.
Annual spending on the state employees retirement fund is about 6.2% of the general fund budget.
“When you make smart, tough financial decisions that are sometimes hard to get through this building that we need to see the results of that and that’s what we’re seeing today,” Wooden said.
Connecticut is currently staring down a $2.1 million budget deficit this fiscal year, but Lamont’s budget office is expected to propose almost $200 million budget cuts. The rest would likely be plugged by some of the $3 billion in the Rainy Day Fund.