Connecticut Pension commission looks at lottery money, asset sales

A commission charged with paying down the state’s pension obligations focused Friday on teachers’ pensions, which a financial adviser suggested could be partly funded with state lottery revenue.

The Commission on Pension Sustainability held its second meeting to discuss ways to prevent the underfunded pension liabilities from draining the state’s finances even more.

The teachers retirement system covers 51,000 active employees and 36,000 retirees, and the state is on the hook for roughly $62 billion to cover its commitment to state workers and teachers.

Teachers’ pensions and health benefits are 55 percent funded — at least $14 billion underfunded. The Connecticut teachers retirement plan is one of the most underfunded pension plans in the country, according to Jim Millstein, CEO of Millstein and Co. Financial Advisory Firm.

He suggested paying down the pension system by contributing a specific amount of the lottery’s revenue, which he said would improve the state’s credit rating, lower borrowing costs, and improve the funding status of the plan.

Millstein laid out a 30-year plan, similar to what was done in New Jersey to finance its teacher pension plan. The idea would be to allocate lottery revenue directly to teacher pensions to get a grip on long-term liabilities.

Over 30 years, the lottery — which generates more than $370 million a year, a figure is expected to increase by 2 percent annually — could fund pensions by as much as $7 billion, Millstein said.

Legalized sports betting could increase the lottery’s revenue stream if lawmakers choose to place sports gambling under the Connecticut Lottery Corp.

“I think it’s a start,” he said. “This isn’t a magic bullet. It’s not going to solve everything that the state’s dealing with, but it’s a start.”

The proposal, however, would likely make it more difficult for lawmakers to balance future budgets.

The legislature is “going to have to fund those liabilities at some point,” Millstein said. “If this legislature won’t do it, future legislatures are going to have to do it or they’re going to be in default.”

Other ideas floated include increasing the state’s annual contribution, reducing the state’s obligation by negotiating with teachers to reduce their benefits, or selling or leasing state-owned property.

Millstein said excess real estate, such as undeveloped or developed land, office buildings, and potential commercial properties should be considered.

“There’s substantial value there,” he said.

He suggested the state take an inventory to determine what assets can be privatized.

Among the properties that could be privatized are state office buildings in Hartford. Such a move would provide revenue not only to the state, but also to the city of Hartford because state-owned properties are subject to payments in lieu of taxes that don’t fully compensate municipalities for lost property taxes.

The real estate, Millstein said, could be placed in a trust, and a real estate firm could be hired to optimize revenue, with the pension being the beneficiary.

Millstein also highlighted state Department of Transportation-owned property along the New Haven line, which could be used to provide affordable housing to young people commuting to New York City.

If developed, the properties could help keep millennials in the state, he said.

“There is an under-exploited resource there,” Millstein said.

Regardless of how the state addresses its immediate pension problems, Rep. Fred Wilms, R-Norwalk, said the state needs to move to a defined contribution plan, such as a 401(k), for as many state employees as it can as soon as possible.

He argued that defined contribution plans would prevent future governors and legislatures from underfunding pensions, a practice that has, at least in part, led to the state’s current fiscal crisis.