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We all use state
services and we
are all invested
in Connecticut's
future. My fam-
ily's investments
are primarily in
our home and
jobs. Yours may
include children in school, a parent in a
nursing home, care for a disabled fam-
ily member, living in a town that relies
heavily on state funding, or the prom-
ise of a state pension. Whatever your
family's investments in and hopes for
Connecticut are, they will be affected
by the information in Connecticut's
recently released financial statements
and actuarial reports.
In that spirit, be forewarned a budget
"balanced" by borrowing and deferring
expenses does not, in fact, balance. As
of June 30, 2013, Connecticut's cumu-
lative on- and off-balance sheet debt
stood at $68.1 billion, or $18,939 for ev-
ery man, woman, and child in the state.
Budgets that truly balance don't borrow
money to cover operating expenses.
So what are the components of Con-
necticut's debt? To whom have we
promised all this money? Accord-
ing to financial reports posted to the
comptroller's and Teachers' Retire-
ment Board websites in late February,
more than 97 percent is owed to the
"Big Three": bondholders, unfunded
state retiree healthcare and unfunded
state retiree pensions. The benefits are
contracted through three separate re-
tirement packages given to state em-
ployees, teachers, and judges. I will
focus on unfunded retiree healthcare
and pension benefits.
For decades, while businesses were
required to responsibly fund their de-
fined benefit pensions, governments
were not held to the same standard.
Some governments realized the ne-
cessity of properly funding their benefit
promises. Connecticut's did not.
Unfunded retiree healthcare, known as
other post-employment benefits, for
state employees, teachers, and judges
is unfunded by $22.6 billion. Of that,
$19.7 billion is the underfunded state
employees' healthcare benefit.
Let's put this in context: A state em-
ployee and spouse are covered by that
state employee's healthcare benefit.
The value of the benefit for both comes
to $325,500, more than enough to pur-
chase a median-priced home in most
Connecticut towns. The amount set
aside to make that purchase, however,
is only $1,200, enough to purchase a
modest refrigerator. To underscore the
magnitude of the debt, the amount
owed under the state employees' con-
tract is a bit more that the value of all of
the taxable property in Stamford. The
amount set aside to pay is 0.6 percent
of the amount owed.
Unfunded retiree pensions: Connecti-
cut state retirees, workers, and their
spouses have been promised pen-
sions valued at $48.9 billion dollars.
The amount set aside to pay that li-
ability is $23.7 billion. Note that the un-
funded pension liability is greater than
that owed on retiree healthcare.
Who is affected? All of us. The United
Nations defines sustainability as a "de-
cent standard of living for everyone to-
day without compromising the needs
of future generations." With so much
of future budgets promised to such a
small segment of the population, Con-
necticut is clearly imperiling its future
Future and current Connecticut state re-
tirees who are depending on these ben-
efits are also in peril. On June 30, 2013,
total benefits were only 33 percent fund-
ed, down a full percentage point from
the prior year. I'm not a betting woman,
and yet I put the chances that the bene-
fits will be paid as promised somewhere
between slim and none.
While the problem is immense, defying
satisfactory explanations, The Econo-
mist in its March 7 edition provided an
excellent perspective:
"Plato's great worry about democracy,
that citizens would `... live from day to
day, indulging in the pleasures of the
moment,' has proved prescient. Dem-
ocratic governments got into the habit
of running big structural deficits as a
matter of course, borrowing to give
voters what they wanted in the short
term, while neglecting long-term in-
vestment ... The financial crisis starkly
exposed the unsustainability of such
debt-financed democracy."
Fiscal sustainability is a component
of any large enterprise and Connecti-
cut is no exception. Governments
throughout the country are acclimat-
ing to a new "post-recession normal."
Decades of the borrowing habit have
left our state at risk. Connecticut's new
normal will depend to a large degree
on how its citizens and leaders bal-
ance the competing needs of state
retirees and ongoing state operations.
This piece originally appeared in the
Hartford Courant on March 29, 2014.
By Julie McNeal, CPA, CTCPA Director of Finance and Operations
Unfunded Debts:
Future Peril
Learn more about Connecticut's fiscal crisis at