State treasurer will recommend pension changes

State Treasurer Shawn Wooden, a Democrat, was elected in November. State Treasurer Shawn Wooden, a Democrat, was elected in November. Photo: H John Voorhees III / Hearst Connecticut Media Buy photo Photo: H John Voorhees III / Hearst Connecticut Media Image 1 of / 6 Caption Close State treasurer will recommend pension changes 1 / 6 Back to Gallery

HARTFORD — Faced with one of the nation’s largest unfunded public-pension liabilities, Shawn Wooden, the newly elected state treasurer, is navigating a turnaround from decades of neglect and generations of Connecticut lawmakers.

The State Teachers Retirement Fund, in particular, could face a multibillion-dollar shortfall within the next few years if the current billion-dollar deficit is allowed to keep snowballing.

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The pension crisis is arguably the single-biggest issue facing state lawmakers. Combined with the State Employees Retirement System, Connecticut confronts an underfunded liability of as much as $100 billion.

During an interview Monday in his seventh-floor office, across from Bushnell Park, Wooden said he’s preparing a variety of options for Gov. Ned Lamont to consider in his annual budget proposal on Feb. 20.

Wooden will suggest that Lamont extend the period that the state pays off pension-related bonds, while leveling off payments that are currently on track to balloon to $2 billion to $3 billion a year over the next four years in the teachers’ fund alone.

“In particular, the mission is to create and have a pension system that is long-term and sustainable and to do that in a manner that’s affordable for taxpayers,” said Wooden, 49, a lawyer and former president of the Hartford City Council.

“I’m trying to give our state increased budgetary flexibility while preserving our standing in the market,” Wooden said. “One of the big knocks on our state is the lack of flexibility. This addresses that in a way where we have a more manageable payment stream over a period of time.”

He declined to go too far into details because he wants to present them to Lamont, who’s also grappling with an estimated $1.45 billion deficit in the state’s $20 billion operating budget scheduled to start July 1. Another option for pension relief is the Connecticut Lottery Corp., which one way or another could be used as a revenue source, as currently considered by the legislative Commission on Pension Sustainability.

“The lottery system can play a role in this solution,” Wooden agreed in his large, mostly empty corner office. “Every taxpayer in the state should be focused on this issue. Pensions are an easy thing to ignore.”

Wooden said there are provisions within the pension bonds that limit what can be done to refinance debt, but his plan is permitted.

Since 1991, the Teachers’ Retirement Fund has been underfunded by $979 million, which if it had been invested, could have produced about $4.2 billion in interest for the state, according to Wooden’s office. But between 1991 and 2005, the state invested as little as 37 percent of the annual amounted needed to meet actuarial requirements.

State lawmakers also had overly optimistic revenue projections for returns on investments that provided short-term relief for annual operating budgets, but contributed to the long-term, growing under-funded liabilities. “Assuming a return level that you’re not going to meet, you just build-in deficiencies under a false assumption,” Wooden said. Previously, the rate of return was pegged at 8.5 percent, but now the teachers’ program is assumed at 8 percent and the State Employees Retirement System at 6.9 percent.

“The higher estimate provides relief, but it’s fiction,” Wooden said. Another hindrance to the pension systems was the under-performing investments in so-called emerging markets, where higher-than-average returns can be made, and lost in African, Eastern Europe and the Pacific Rim.

“Emerging markets under-performed nationally in the past year and Connecticut has slightly under-performed even further,” said Wooden. While the average loss for investors was 15.1 percent, Connecticut investments took a 15.7 percent hit.

“It’s not a number I am happy with,” he said. A couple of investment managers were fired, but Wooden wants to hire more. “They need to have on-the-ground knowledge.”

Just a month into his four-year-term, Wooden admits that as the state’s chief fiduciary, it’s going to take a while to turn things around.

“I would like to know what’s it’s like to serve with a surplus,” he said with a smile.

kdixon@ctpost.com Twitter: @KenDixonCT