There are 13 states, including Connecticut, whose public school teachers don’t participate in the federal social security system. Instead, Connecticut public school teachers contribute to a state managed pension fund. One that, like a corporate provided pension fund, requires contributions from the employer, only in this case the state of Connecticut. What has been happening, is that the state has been putting off paying it’s share, or obligation. Similar to making the minimum payment on a credit card bill, and letting interest accrue on the balance, which keeps growing.
That simple scenario is caught up in all the usual political nonsense that tries to obscure the simple, with the convoluted that only ends up profiting the few at the expense of those that stop paying attention. What ever idealogical flag you run under, the basic problem the state of Connecticut faces today is that the credit card bill that our legislature has been ignoring because it’s been happy to make the minimum payments for years is about to come due. There are on the near horizon many teachers who are ready to retire.
Credit cards are not the only way to finance debt, and typically you want those in charge of financing things to seek out the lowest form of debt, or more prudentally get out of debt entirely. Enter State Treasurer Denise Nappier and Majority Leader Jim Amann with a step in the right direction, a way to lower the costs of financing that debt. From their joint press release:
The proposal calls for a $2 billion pension obligation bond (POB) sale, payable over the next 25 years at
current interest rates (approximately 5.6%). The debt from the POB sale would cost less than the rate the
state is currently being charged (8.5%) on the unfunded liability. Treasurer Nappier and Speaker Amann urged
the legislature to “lock in a lower interest rate,†so the State could substitute high-interest debt (8.5%), for
lower-interest debt (5.6%), thereby saving money over time.“This plan with savings of $2.8 billion over 25 years represents the biggest and best deal for taxpayers in
recent history,” said Speaker Amann. “Essentially we are taking advantage of lower interest rates and refinancing the mortgage.”
The other part of the bill addresses the idea of paying more than the minimum payment over the life of the bonds. Anytime you reduce interest on debt, that’s a good thing. Just ask all those homeowners who refinanced mortgages.
