'Costs will be everything': Bradley Airport operator looks to cut employee retirement spending

Photo of Paul Schott
Bradley International Airport in Windsor Locks, Conn.

Bradley International Airport in Windsor Locks, Conn.

Brian A. Pounds / Hearst Connecticut Media

WINDSOR LOCKS — Bradley International Airport’s operator is advocating for state legislation that would allow it to change its non-union employees’ retirement plans in an effort to save millions of dollars as it grapples with the financial disruption unleashed by the coronavirus pandemic.

The Connecticut Airport Authority wants to give approximately 30 non-union employees the option to withdraw from the state retirement system and join defined-contribution plans and put future non-union hires in those accounts. Those changes could initially save up to $1.25 million per year and eventually up to $3 million annually, according to CAA officials.

“Despite hiring freezes, significant budget cuts and withholding salary increases that were due to personnel, we still have a number of financial issues,” Kevin Dillon, the CAA’s executive director, said while testifying Feb. 19 in an online meeting of the state legislature’s Transportation Committee. “As we look toward recovery from the pandemic, costs will be everything to any airport across the airport. ... The airlines are very focused on our costs.”

Financial pressure

Windsor Locks-based Bradley’s passenger traffic in 2020 plunged 64 percent from 2019, to a total of about 2.4 million travelers, reflecting the global drop-off in air travel during the pandemic.

Due to a corresponding decrease in airline landing-fee revenues, fewer passengers parking and frequenting concessionaires and some tenants seeking lease relief, Bradley’s finances have become “increasingly tenuous,” Dillon said. In the fourth quarter of the 2020 fiscal year, Bradley’s revenues finished $10 million under their projected amount.

At the same time, the financial pressures have led to the airport deferring nearly $23 million worth of capital projects, according to Dillon.

“After the pandemic subsides, airports will be competing against each other to attract airlines and regain the services that have been lost over the past year, and that competition will take place in the context of a shrinking pool of airline assets,” Dillon said in written testimony submitted to the Transportation Committee. “Given the financial pain that has been experienced across the industry, the ability to attract airlines will increasingly hinge on presenting the best possible business case to our partners in the airline industry.”

While the CAA’s operations are totally funded by its revenues, it functions as a quasi-public agency. Its approximately 150 active employees — most of whom are based at Bradley — participate in the state retirement system, which covers state employees and public-school teachers. The state system largely comprises pension plans.

CAA officials said that their organization is shouldering a heavy burden in its employee-benefit contributions to help the state make up for years of retirement under-funding. In total, Connecticut faces more than $40 billion in unfunded retirement liabilities.

For “non-hazardous duty” employees, the CAA’s benefit rate totals 95 percent of those employees’ base salaries. Retirement-related costs account for about two-thirds of those benefit obligations, according to the CAA.

“It is important to note that our employees do not even experience the benefit of these high rates. The rates are driven by legacy costs that accumulated over decades of the state not properly funding its pension system,” Dillon said in his written testimony. “Although the legislature has made major strides in recent years with … the movement towards a hybrid defined-benefit/defined-contribution model for newer employees, the gravity of the system’s legacy costs will continue to ensure very high benefit rates into the future until the system’s unfunded liability is more under control.”

Implementing a defined-contribution framework would result in the CAA significantly reducing its allocations to the state retirement system that are made through the benefit payments to non-union workers. That change would produce initial annual savings of up to $1.25 million and eventually up to $3 million annually, according to the CAA.

For the non-union employees, the CAA is proposing a defined-contribution system comprising plans that would essentially function like 401(k) plans. The CAA would contribute 8 percent of non-union workers’ salaries to those accounts.

Current non-union employees would choose whether to stay in the state system or set up a 401 plan. All new employees at a certain point would join a 401 plan.

For the most part, management positions comprise the non-union workforce. As executive director, Dillon is not unionized and already participates in a 401 plan through his own contract.

Airlines for America, the U.S. airline industry’s principal trade and service organization, has endorsed the CAA’s plan.

“Higher airport costs discourage airlines, especially low-cost carriers who largely transport leisure travelers, from growing their service at a particular airport,” Sean Williams, Airlines for America’s vice president of state and local government affairs, said in a Feb. 18 letter to the committee. “Reducing costs, particularly in this extremely challenging economic environment, will be paramount to the future growth of Bradley International Airport.”

Legislators’ lukewarm response

Transportation Committee members were noncommittal during the Feb. 19 meeting about whether they would support legislation allowing the CAA’s proposed changes. They did not vote during that meeting on House Bill No. 6426, the bill that the CAA has suggested amending to incorporate its proposal.

“A unilateral change that we might make to benefit the Airport Authority would necessarily have impacts more broadly to state pension funds and collective-bargaining agreements,” said state Rep. Roland Lemar, D-New Haven, the Transportation Committee’s chairman. “We didn’t think it was appropriate for the Transportation Committee to take this one issue up in isolation. That’s why we refrained from taking it up on its own because there are much broader impacts to it than just the Airport Authority.”

Some committee members noted that even if its plan were implemented, the CAA would have to keep contributing to the state retirement system.

“I want Mr. Dillon to understand he will still have the responsibility of all the people that were hired by the Airport Authority that are being paid pensions,” said state Sen. Cathy Osten, D-Norwich. “That will still sit on his books.”

The CAA is not seeking to change the retirement plans of its other approximately 120 employees, who belong to statewide unions. Any modifications to their retirement benefits would require their unions’ approval.

pschott@stamfordadvocate.com; twitter: @paulschott