CT braces for impact of market downturn on pension reserves

Jul. 25—As Connecticut continues to chip away at a state debt load among the highest in the country — the outcome of setting aside too little money for pensions and retiree health plans — states nationally could see their debts balloon this year as a result of the swooning stock markets, according to a new study.

The advocacy nonprofit Reason Foundation is forecasting a 6 percent drop in investment returns for the 2022 fiscal year ending last month, which would help push unfunded liabilities above $1.3 trillion across nearly 120 plans charged with safeguarding state pensions.

Last Wednesday, the administration of Gov. Ned Lamont announced $4.1 billion in transfers from the state budget for the fiscal year to reduced unfunded liabilities. Coupled with smaller payments in the prior two years, the Office of Policy and Management calculated at $12 billion the potential savings over the coming quarter century.

As of the 2021 fiscal year, Connecticut had funded only 53 percent of the $37.6 billion for which it is on the hook for future pension payouts, according to the Reason Foundation, which has offices in Los Angeles and Washington, D.C. That paired Connecticut with Kentucky for the worst unfunded debt load in the nation, with New Jersey third.

At the other end of the table, New York trailed only Washington and Wisconsin for the best profile, with all of New York's outstanding pension obligations funded with a $46 billion surplus to help absorb any prolonged slump in the stock market.

Earlier this month, Lamont said he was bracing for the impact of the market decline on Connecticut's financial obligations, coupled with the likelihood of an economic recession impacting tax collections. The Dow Jones Industrial Average was off 12.8 percent on the year as of Wednesday afternoon, with the Nasdaq down by twice that margin.

Lamont said the state's "rainy day" fund, now at its $3.3 billion cap under the law, gives the state one option to keep up with its goals for trimming overall debt and obligations.

"Over the last 30 years are fixed costs have been growing, accelerating, eating up more and more of the operating expenses," Lamont said during a Hartford press conference on July 7. "Previous administrations just added to the credit-card debt and hoped that somebody would pay that off — it's like a game of Pac-Man eating up more and more of the budget. We have a long way to go but we have begun bending that curve."

Lamont said the state has focused during his three years in office on paying down pension obligations, having shaved $11.5 billion through additional contributions to the State Employees Retirement System and the Teachers' Retirement System.

Fitch Ratings gave an "AA-" rating in May to Connecticut's newest issue of general obligation bonds, on the lower end of its second tier "very strong capacity" for repayment even taking into account the possibility of a recession and market fluctuations. Fitch Ratings is a New York-based subsidiary of Hearst Corp., which owns CTInsider and Hearst Connecticut Media Group,

"The state has consistently demonstrated the ability to cover its comparatively high fixed costs, including making full actuarial contributions to pensions," Fitch analysts wrote in their May assessment. "The state's long-term liability burden is elevated and among the highest for U.S. states, but still considered moderate relative to personal income."

Includes prior reporting by Ken Dixon.

[email protected]; 203-842-2545; @casoulman

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