Stephen Eide, a senior fellow at the Manhattan Institute, has penned Connecticut City Pensions: The Affordability Gap challenging urban governments. He conducted an analysis of Bridgeport, New Haven, Hartford, Stamford, and Waterbury declaring “The case for dramatic retirement benefit reform–meaning phasing out retiree health care and transitioning workers from a defined-benefit to a defined-contribution plan–may be more urgent for Connecticut’s biggest cities than for the state.”
Connecticut state government’s pension struggles are well understood: deep levels of underfunding have led to credit-rating downgrades, tax increases, recurring budget deficits, and an inability to fund essential services. What has been overlooked, though, is the challenge that the state’s five largest cities by population–Bridgeport, New Haven, Hartford, Stamford, and Waterbury–face in paying for their own retirement benefit promises.
All five of these cities have promised hundreds of millions of dollars in benefits, a promise that is backed, ultimately, by their tax base. With the exception of Stamford, however, they all have weak economies and elevated rates of poverty.
While the state’s record of pension mismanagement is well documented, cities have been guilty of mismanagement as well. However, for the state’s five biggest cities, the question of affordability is more important than mismanagement.
Despite rate increases, property tax revenues have not been keeping up with pension costs in New Haven, Hartford, and Stamford. Hartford’s property tax revenues, for example, grew by $2.7 million from FY08 to FY17 in real terms, while its pension costs grew by $16.7 million. Though annual costs for retiree health care have not risen as dramatically, they are still high, totaling $132 million for all five cities combined. This is a questionable expenditure, considering that the private sector has largely phased out health-care benefits for retired workers.
The case for dramatic retirement benefit reform–meaning phasing out retiree health care and transitioning workers from a defined-benefit to a defined-contribution plan–may be more urgent for Connecticut’s biggest cities than for the state.
Full report here.