By Joseph De Avila

HARTFORD -- Connecticut Gov. Dannel Malloy urged state labor unions to make concessions to help close a $1.5 billion budget deficit and called for changes in how the state funds public education.

In his annual State of the State address, Mr. Malloy, a Democrat, said pension obligations for state employees and unions would rise by $360 million in the fiscal year that begins in July and pressed public employees to help close the state's funding shortfall.

"These changes can and should be reached respectfully and at the bargaining table," Mr. Malloy said. "Our state must honor its legal obligation to our public servants and state retirees, while at the same time keeping our promises to Connecticut taxpayers."The call for unspecified concessions from state employees were part of Mr. Malloy's message that the state government is going to have to shrink. "Because the truth is, we simply can't afford to continue doing everything we've done in the past," he said.

Mr. Malloy enters the 2017 legislative session with his party still in control of both the state House of Representatives and state Senate but with the slimmest lead of his tenure, which began in 2011. Democrats control the state House of Representatives 78 to 72. Republicans and Democrats hold an equal number of seats in the state Senate, but Lt. Gov. Nancy Wyman, a Democrat, can cast a tiebreaking vote.

The governor also said the state should recalculate how it allocates educational funding to towns and cities to guarantee an equal access to quality education regardless of where students live.

The move follows a September state court ruling that found Connecticut's funding method for public schools violated the state constitution and ordered the state to devise a new funding formula. The ruling followed a lawsuit filed against the state in 2005 by a coalition of cities, school boards, parents and their children seeking to address funding disparities between high- and low-income districts. Connecticut's Supreme Court said it would review the case and issued a stay on lower court's order.

Mr. Malloy didn't specify how the funding formula should be altered but said that change should happen. "Our state constitution guarantees it, and our moral compass demands it," he said.

Mr. Malloy also asked the state Legislature to support his proposal to modify how the state funds its main pension system. The governor and a coalition that represents state employees said in December they reached an agreement where the state would pay smaller annual pension payments but over a longer period.

The deal means that state pension payments now will peak at $2.4 billion in 2032 while previous estimates said it could have ballooned to $6.65 million at that time. Mr. Malloy says the state wouldn't have been able to afford that without making steep spending cuts. That state currently pays about $1.5 billion annually to fund its pension obligations.

While the changes to the pension funding could be brought to a vote in the state Legislature, if lawmakers fail to vote on the matter, it automatically will go into effect in February.

Write to Joseph De Avila at

(END) Dow Jones Newswires

January 04, 2017 14:28 ET (19:28 GMT)

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