May 24, 2017

(Reuters) – Connecticut Governor Dannel Malloy on Tuesday proposed a wage freeze and higher employee contributions to pension and healthcare while reducing the state’s share, in a framework for an agreement with labor unions that could save the state over $1.5 billion by 2019.

Malloy’s plan proposed to increase employee pension contributions by 2 percent of pay from 2019 financial year and reduce the state’s share of pension contributions by $400 million to $500 million per year.

The proposal aims to redesign the health insurance plan and to increase the employee share of premiums by 1 percent a year for existing employees from 2020 to 2022, raising the average contribution to 15 percent.

The framework will reopen the contract currently in effect through June 30, 2022. If adopted it could save the state up to $10 billion over the next decade.

Malloy, a Democrat, also proposed to freeze wages until 2019, before a 3.5 percent wage increase a year in 2020 and 2021. The wage freeze could result in savings of $385.2 million in 2019.

The governor said the plan would avoid the need for mass layoffs and provide the state greater flexibility.

“This framework will surely create more affordable and more sustainable labor costs in a way that generates structural, long-term savings of over $20 billion over the course of the next two decades,” Malloy said in a statement.

Earlier this month, Fitch Ratings downgraded the state one notch to A-plus because of a dimming economic outlook and a lack of fiscal flexibility, making it the third-lowest-rated U.S. state on Fitch’s roster.

Connecticut is the wealthiest U.S. state on a per capita personal income basis and its economic growth has been “unusually slow and uncertain” during the current national economic expansion, Fitch said on May 12. It said the state is expecting weak job growth in coming years.

The chronic economic challenges and Connecticut’s high budgetary liabilities have constrained the state’s ability to maneuver financially, Fitch analysts said of reasons for the downgrade.

(Reporting by Diptendu Lahiri and Ismail Shakil in Bengaluru; Editing by Bill Trott and Amrutha Gayathri)

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