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Katie Roy Testifies Before Public Safety and Security Committee in Support of S.B. 280

Testimony Regarding S.B. 280, An Act Concerning the Connecticut Lottery Corporation

Katie Roy, Director & Founder
Public Safety and Security Committee
Thursday, March 15, 2018

Chairmen Larson, Guglielmo, and Verrengia, Ranking Member Sredzinski, and distinguished members of the Public Safety and Security Committee:

Thank you for the opportunity to provide testimony supporting S.B. 280 and its efforts to examine one possible way that funding for Connecticut’s state retirement systems might potentially be improved and stabilized.

My name is Katie Roy and I am the director and founder of the Connecticut School Finance Project, a nonpartisan, nonprofit policy organization based in New Haven. In addition to our work on education funding, our organization recently expanded its work to include examining Connecticut’s overall fiscal and economic health.

In our analysis of the state’s finances and fiscal challenges, there is perhaps no greater financial obstacle to Connecticut than its long-term pension and debt obligations. Currently, Connecticut’s two largest state pension systems — the State Employees Retirement System (SERS) and the Teachers’ Retirement System (TRS) — have tens of billions of dollars in unfunded liabilities.

These substantial unfunded liabilities are the result of several factors, including: the State not contributing anything to the pension systems for decades, the State routinely contributing less than its full annually required contribution (ARC) when it did make a contribution to the pension systems, and overly optimistic assumed return rates for investments made with state pension funds.

Currently, SERS has accumulated more than $21.7 billion in unfunded liabilities and has the third-lowest funded ratio (35.5 percent) of any state pension system in the nation. Additionally, TRS has accumulated more than $13.1 billion in unfunded liabilities and is considered a poorly-funded pension system with a funded ratio among the worst in the nation at only 56 percent.

As the unfunded liabilities for Connecticut’s state pension systems have increased and the system’s funding ratios have decreased, the State’s ARCs are projected to continue to climb. For example, the State’s projected ARC for TRS will continue rising before peaking in fiscal year 2031 with a payment of $1.71 billion — approximately $731 million higher (or 75 percent) than the State’s contribution in fiscal year 2016.

Addressing Connecticut’s pension obligations, and ensuring the State is able to make good on its promises to retirees and current employees, is critical to our state’s fiscal health and future, and requires looking at all reasonable and legal options.

S.B. 280 presents an opportunity to examine one option that can potentially help strengthen Connecticut’s state pension systems and offer some fiscal stability.

Making a structured asset transfer of the Connecticut Lottery Corporation to a “common trust fund for the benefit of the state retirement systems” is an option worthy of consideration and examination, and has the potential to decrease the State’s ARCs and improve the funded ratio of the state’s pension systems by moving a designated revenue stream to one or both of the systems.

S.B. 280 offers a chance to examine an innovative approach to help address Connecticut’s growing fixed costs and unfunded pension systems. While no one option or financial maneuver will solve our state’s fiscal challenges or fully address Connecticut’s long-term debt obligations, the path toward a structured asset transfer of the Connecticut Lottery Corporation deserves full consideration and examination, and has the potential to be a strong step toward greater fiscal and economic health.

As a result, I urge the Committee to support and pass S.B. 280.

Thank you again for allowing me the opportunity to testify in front of you today, and I am happy to answer any questions you may have.

Sincerely,

Katie Roy
Director & Founder
Connecticut School Finance Project