Mr. President, Mr. Speaker, Lt. Governor Wyman, and my fellow state officials, ladies and gentlemen of the General Assembly, honored members of the judiciary, members of the clergy, and all the citizens of our great state: thank you for the honor of inviting me once again into the people’s House.

Let me offer my sincere congratulations to those of you taking on new and important leadership roles, as well as those who have been reelected into leadership positions.  I also want to congratulate the new members sworn in earlier today.  I look forward to working with all of you.

Let me note, since we were here last together, we have lost some dear friends, including Mary Fritz and Betty Boukus, both of whom served in this house.  Our hearts are heavy as we continue to mourn their passing.

As always, let us thank Connecticut’s brave men and women serving our nation around the globe.

Thank you, as well, to my dear friend and the best Lt. Governor in the country, Nancy Wyman.

And finally thank you to my wife Cathy and our three sons for their love and support.

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This past September, the Connecticut General Assembly met in a special session.  You met to take historic action in support of our state’s economy and our incredible workforce.

The legislation you voted to support – and that I signed into law – protected 8,000 jobs at Sikorsky Aircraft. Equally importantly, it shored up thousands more jobs up and down Sikorsky’s supply chain, and across every corner of our great state.  It nearly doubled their spending with local suppliers to almost $700 million per year over the next decade and beyond.

Thank you for that work.

In recent years we’ve secured similar investments from United Technologies and Electric Boat.  Taken together, these agreements cement our leadership in advanced manufacturing around the globe.

A decade ago, if any of us had told our constituents that in 2017 not only would Electric Boat would be ramping-up their production rather than winding it down, not only would Pratt and Whitney be planning to put thousands more people to work, but that Sikorsky would be committed to Connecticut for another generation to come… well, they wouldn’t have believed us.  They would have told us that we were overly optimistic at best, and naive at worst.

And yet, here we are today. Working together, we have turned what many once considered impossible, into a reality.

Together we’ve protected Connecticut’s aerospace and defense industries for a generation and likely beyond.  More importantly, we’ve given these employers, and the tens of thousands of employees who work for them, something that is vital in today’s world:

We’ve given them predictability.

We know that predictability creates confidence.  And we know that confidence creates growth.

When we give people reason to believe that their job is here to stay, we’re giving them the confidence to purchase a home, to buy a new family car, or to start a college fund.  In other words, we’re giving them confidence to take part in our state economy.

And it’s equally true for their employers.  Predictability allows businesses to expand, to make new hires, to put down new roots right here in Connecticut. This is what companies and their workers are looking for.  They deserve it, and it’s on us to provide it.

That’s what I want to talk to you about today – about what we’ve done in recent years to make our budget more predictable, and our economy more sustainable.  And about how we can continue that important work this legislative session.

I’m going to discuss three key areas that I believe we should focus on this year in order to balance our current budget, and also continue our progress towards long-term prosperity.

The good news is that, for each of these three areas, positive change has already begun.

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To start, we need to continue making state government leaner and more cost-effective.

The responsible way to do that is by setting priorities, and allocating our resources where they are needed most.  Because the truth is, we simply can’t afford to continue doing everything we’ve done in the past.

In recent years, commissioners and state employees have been hard at work finding creative ways to continue providing essential services while also saving money.  These cuts were not painless.  Important work had to be phased out so that other vital services could continue.  But the results are plain to see.

Last year we cut nearly $850 million to bring our current fiscal year in balance.  In so doing, we spent less in the General Fund than we had in the previous year for the first time since 2002.

We’ve reduced the number of state agencies by 28 percent since 2011 — shrinking from 81 agencies down to 58.

During that same time period, we reduced the size of our executive branch workforce by nine and a half percent.  We now employ 5,000 fewer full-time employees than we did in 2008.

And don’t let anyone tell you that these reductions are only in front-line employees.  We’ve reduced the number of state management positions by 28 percent.

While we had to go through the unfortunate, but necessary, process of layoffs last year, the vast majority of these reductions have come through attrition.

We’re also spending less on overtime.  With your strong partnership and encouragement, overtime costs dropped 14.5 percent last year, saving the state $37 million.

All told, excluding higher education, the executive branch workforce is at the smallest it has been since Ronald Reagan was president.

And now, in this biennium, we need to continue that work, ensuring we reduce spending responsibly and with great care.

Commissioners will need to once again work with their staff – and with you, our legislative partners – to find additional savings.  Like families across Connecticut, just because we responsibly managed our budget in recent years doesn’t mean we can take this year off.  We must continue to live within our means, spending only as much revenue as we have, and no more.

In September, my administration asked agencies to begin thinking about what additional cuts would mean.  Having further explored these options, many of their recommendations will be included in the budget I present to you next month.

Cuts in specific areas, or outright eliminations, should not be taken to mean that certain work is not valued.  It simply means that we can no longer afford to do it all, and that our spending must be focused on the very core, essential services for our residents.

And to be clear, saving money isn’t just about cutting line-items, or reducing headcount.  Agencies will continue to modernize systems, reduce waste, and increase productivity in order to cut costs as much as possible before impacting services, or the valuable employees who provide them.

Together, we can continue to make state government more efficient, more sustainable, and more reflective of our economic reality.

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The second area I’d like to talk about are the obligations we have to Connecticut’s state workers, educators, and retirees.

Connecticut’s state pension systems were created 80 years ago, but not a single dime was deposited into the account during the first 30 years of its existence.  It was a pay-as-you-go system.

Over many decades, legacy costs, insufficient contributions, lower-than-assumed returns, and early retirement packages left us with a significant unfunded liability in the state’s employee and teacher retirement systems.

The stark reality is that, after 80 years, the state has set aside only one-third of the money necessary to responsibly fund its obligations.

Let me put it in context.  Of the $1.65 billion that we will pay next year into the state retirement systems, 78 percent of that – or nearly $1.3 billion – is what we’re paying to make-up for what past administrations and past legislatures failed to do.

Simply put, our generation is paying for Connecticut’s past mistakes.

Is it frustrating to do that?  Of course.  Is it necessary?  Absolutely.

It’s also the right thing to do. Our state retirees dedicated their lives and careers to public service.  We need to pay them the pensions they were promised.

Let’s also acknowledge and thank today’s state workers for their efforts in support of Connecticut residents and businesses.  In 2011, we worked at the bargaining table to help put Connecticut on a more sustainable fiscal path.  Together we changed benefits, reduced longevity pay-outs, restructured state pensions, raised the retirement age, and required all employees to pay for a portion of their post-employment benefits.

We saved the state $1.6 billion on our unfunded liability in the immediate two years following that agreement – and a total of $21.5 billion over the following 20 years.  Had we not realized that level of savings, our current $1.5 billion projected deficit would be much, much worse.

Since making this agreement in 2011, the state has honored its commitment to fully fund the pension obligations each and every year – finally doing together what should have been done for the prior 80 years.

Building upon these years of work, my administration recently came to a crucial agreement with our state employees and our retirement commission, an agreement which will make our pension payments more affordable, and yes, more predictable.

Independent analysts are taking note.  Moody’s Investors Services, a national credit rating agency, deemed this to be ‘a credit positive’ step for our state.  And the plan’s actuaries say these changes will ‘enhance the stability’ of our pension system.

I urge you to support these important reforms.

Today, despite all this hard work and real progress, it’s clear we have more work to do to make our short and long-term labor obligations more affordable.

Fixed costs continue to increase every year, hampering our ability to maintain vital public services.  Pension obligations for both state employees and teachers are on track to cost the state an additional $360 million in the next fiscal year compared to this current year.  Clearly, the fiscal challenges we face during the next biennium are very real.

In the weeks ahead, my administration will continue working with labor leaders to find solutions for bringing employee costs in line with our economic reality.  These talks have been frank and direct so far, and I’m appreciative that state workers are taking part in them.

It’s very hard, but we must reach an agreement on how to make our pensions and benefits more affordable, as we face these fiscal challenges together.  We must recognize that a responsible and balanced solution to our budget problem is one that includes state employee concessions.

These changes can and should be reached respectfully, and at the bargaining table.  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.

Here’s another promise: We will not remake the poor decisions of the past.  We will not saddle future generations with fiscal cliffs and unpayable fixed costs.  Responsible changes must be made — and they must be made this year.

As our past record demonstrates, when we come together, hold realistic expectations, and seek common ground, we can deliver results.

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The third and final area I’d like to focus on with you today is how we go about distributing aid to our towns and cities – primarily how we fund public education.

The state provides a total of $5.1 billion in municipal assistance.  That’s more than one fifth of our overall budget this year, making it our biggest single expense – not state employee pensions, notMedicaid, not debt service, not salary and benefits of our employees; town aid accounts for the largest portion of our state budget.

It simply would not be fair for us to talk about continued state agency reductions, or talk about the need for labor concessions, without talking about new ways to provide town aid.

Of the $5.1 billion distributed to municipalities, 81 percent of that – or $4.1 billion – is educational funding.  That doesn’t include school construction financing, which accounts for approximately one quarter of Connecticut’s bonded debt.

Now that I’ve put what we spend into context, let me say this – of course Connecticut should be spending lots of money on local education.  We all believe that investments in education are a down payment on our state’s future.  Our budget must reflect those values.

The question is, in a time of scarce state resources, are we spending this money in the best way possible?  Are we ensuring that all students, regardless of the life circumstances into which they are born, regardless of what town or city they live in – can receive a quality public education?

I don’t believe we are meeting that standard.  And I will point out that a recent court decision says that, as well.

It’s why I have long-advocated that we direct our support to those municipalities that are struggling the most — so that we can level the playing field for our students and our taxpayers.

While we have made progress on this front in recent years I still believe we have not gone far enough.  Connecticut needs a new way to calculate educational aid – one that guarantees equal access to a quality education regardless of zip code.

Our state constitution guarantees it, and our moral compass demands it.

We need a formula that appropriately measures a given community’s burden.  A formula that recognizes specific challenges faced by local property taxpayers.  And a formula that takes into account the impact those challenges have on the education provided to our children.

The budget that I will present to you next month will outline a more equitable system for providing town aid.  It will be based on the local property tax burden, student need, and current enrollment.

The system will be designed to be more fair, transparent, accountable, and adaptable – meaning that it will provide flexibility to fit the needs of a given community.

The result will be a fairer distribution of our state’s limited funds.

And if we are successful in this effort, there will be an important ancillary benefit – we can help ensure that no Connecticut city or town will need to explore the avoidable path of bankruptcy.

To be clear, that kind of help shouldn’t come without strings attached.  If the state is going to play a more active role in helping less-affluent communities – in helping higher-taxed communities – part of that role will be holding local political leadership and stakeholders to substantially higher standards and greater accountability than they’ve been held to in the past.  We should do it so that increased aid doesn’t simply mean more spending on local government.

Those are the steps I believe we need to take on town aid funding.  The budget I propose next month will lay out a detailed path for getting there.

Now, based on prior experience, I can assume that the proposal I put before you will not be exactly what arrives on my desk a few months later.  I understand that.  That’s how it works.  And I’m ready to partner with you.

But understand this – we need real change.  Change that leads to a better, more equitable system for town aid.  For the sake of our collective future, there is no reason to wait.

So let’s get to work.

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I began today by talking about our recent historic partnership with Sikorsky.  But of course, it’s not just about the aerospace industry.

Regardless of region, employment, or income, people in every industry and at every income level are counting on us to get it right.

A family in Farmington where both parents work in the insurance industry deserves the reassurance of a more stable business climate – one that keeps their jobs here in Connecticut.

A math teacher in Norwalk should have the peace of mind that her pension and benefits will be intact when she retires after decades of hard work.

A New London High School graduate, following in his father’s footsteps building submarines here in Connecticut, is owed a stable job with livable wages – enough to buy a home and raise a family.

If you don’t think we can do it for these people, and for all people in our state, if you don’t think we can help our constituents and make their lives and their careers more positive and more predictable, I ask that you look no further than the progress we’ve made in recent years to see exactly what is possible when Connecticut works together.

Years of good economic development are helping to grow jobs.  In fact, since the end of the Great Recession, we have recovered 85,000 jobs.

Through the Small Business Express program, more than 1,600 companies have retained 18,000 good jobs and are now creating even more.

The Manufacturing Assistance Act has helped 150 companies since 2011, retaining 34,500 jobs and growing 8,500 more jobs.

All told, unemployment is now at 4.7 percent – its lowest level since 2007.

In 2012, we worked across party lines and passed comprehensive education reforms.  Today, thanks to great teachers and principals, our students are some of the best readers in the country.

And after years of decline, our graduation rates have risen for five years in a row and are now at their highest point in Connecticut’s history.

We’ve made monumental advancements for our most vulnerable children in Connecticut, as well.

Many people have doubted that we would finally be in a position to resolve the 25-year-old Juan F.case, which has kept DCF under federal oversight.  For too long, this has been an embarrassment for our state, and an unacceptable situation for our children.

But today, the end of that federal oversight is within reach.  We are finally ready for Connecticut state government to reclaim its responsibility for Connecticut kids. Please join me in support of this progress.

We are also improving our transportation system as we speak, thanks to the investments we’ve made together.  The on-time and on-budget completion of the Q Bridge project means that, on a daily basis, 140,000 motorists are getting to where they need to go with greater ease.

And with CTfastrak, more people are riding Connecticut transit buses to work.  Exceeding all initial projections, average ridership on CTfastrak is as high as 19,000 people per weekday.

And finally on the criminal justice front, Connecticut is leading the nation, and is now safer than it has been in fifty years.

Our prison population has dropped significantly, and high-risk, violent offenders are serving more of their sentence than ever before.  Recidivism has declined substantially.  This progress has allowed us to save taxpayers $70 million in the current fiscal year.

All of this work – all of it – is making Connecticut a better, more desirable place to work and live.

I need to do one other thing.  I would be remiss if I didn’t take a moment to stress the importance of predictability and stability in the wake of November’s presidential election.

I have no desire to rehash or re-analyze the results – we all get plenty of that from cable news.  But I do want to offer two brief thoughts on what we can learn from November, and how it might impact our work here at home this session.

First, it is now more clear than ever that too many Americans feel disconnected from their government.  They feel the system isn’t working for them – that they aren’t able to take part in the American Dream.

While we might disagree on the role of government in that effort, on whether it should be more active or less, I offer to you that a greater degree of predictability in government – in all government, at alllevels – will help reengage and reinvigorate our democracy.

Second, regardless of your party or who you voted for, most of us can agree that this presidential transition has been nothing if not unpredictable.  It has left some people and some communities feeling anxious and uncertain.

But let me remind you of this – our state has a long legacy of acceptance, compassion, and fairness.  Regardless of whether your family settled in Connecticut 300 years ago or three days ago, you are welcome here.

As the people of Connecticut navigate a changing national landscape, we will continue to ensure that every state resident is treated with dignity and respect.

That will not change.  Not now.  Not ever.

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This year, here in Connecticut, we must focus on these historic strengths as we also work to make our budget and our economy more vibrant.  We must continue our progress together.

I’m asking for your partnership.  I’m asking that we approach this session and this budget in a spirit of authentic, bipartisan collaboration.

Next month, I am going to come back to you with more details on the topics I laid out today: about how government should continue to become smaller and more effective; about how we can continue working with our partners in labor to create a sustainable benefit system that we can afford not just now, but into the years ahead; and about why we should find a fairer way to fund public education, so that we can ensure dollars are going to where they are needed most.

All of it will be geared toward building a more predictable budget and a more sustainable Connecticut economy.

We are in this together, and together we shall prevail.

Thank you.  God bless you, and may God bless the great State of Connecticut.