My latest post to Public Sector Inc.:
Whoever Connecticut’s next governor is – whether Malloy wins, loses or takes a job in Washington – his or her single most important task will be to negotiate a new agreement with state employees.
If Connecticut wants to have a safety net left other than the silk-lined golden parachute provided for state employees, the next governor will need to make a critical point to state employees: I need flexibility to manage the government or a less-expensive workforce.
State employees currently have extensive benefits and work in a rigid, ossified – if not petrified – bureaucracy. These two conditions cannot continue to exist together.
Either state employees can continue to work in a faceless bureaucracy where little change is possible and no differentiation is made between employees of the same rank or they can continue to get benefits envied by the middle class and unimaginable to the people stuck in Connecticut’s malfunctioning safety net.
The next governor should make this his or her opening proposition.
Option 1: Pensions vest today for every single state employee at their current salary and years of service levels. No more time can be earned toward pensions. Instead, employees receive 8 percent of their salary in the government equivalent of a 401(k) plan.
Employees who retire after 2022 get no retiree healthcare. Instead, the state will purchase long-term care insurance for its employees. This will provide a benefit for state employees with future offsets in state Medicaid spending.
In return, state employees can remain anonymous, undifferentiated cogs in the machine of state government.
Option 2: The administration can actually manage state government. All state employees will be evaluated annually and their performance will be graded. Two-thirds of the cost of step raises, cost-of-living increases and other pay bumps will all go into one pot. Management can distribute the increases however it wants, as long as only two-thirds of the total is distributed. (The state will recognize the remaining third as savings.) This will create an incentive among state employees to outperform their peers.
Up to 10 percent of state employees can be laid off, fired or replaced annually, no questions asked, no appeals, no arbitration, based on their performance evaluations and/or the state’s needs.
This contrasts with the recent findings of state auditors that a number of managerial employees received performance bonuses despite the absence of a performance evaluation.
With this freedom to operate, the state can afford to maintain some of the anachronistic benefits afforded state employees with only a few modifications.
First, instead of cost-of-living increases, state employees should get a share of Connecticut’s prosperity – or lack thereof, as the case may be – as suggested by Yale finance professor Robert Shiller.
If Connecticut’s gross domestic product goes up, retired state employees should get an increase equal to half that amount. If output goes down, they should get a lack-of-prosperity reduction equal to half the percentage decrease in income.
Second, retired state employees should pay the same premiums for their healthcare as current employees do until they join Medicare, at which point they can make a nominal contribution. All contributions will be deducted from pension payments.
In return, state employees get to keep their defined-benefit pension and retiree healthcare programs.
If Connecticut doesn’t take one of these paths soon – and behind strong leadership – nibbling around the edges won’t ever be enough again.