UPDATE 2-Connecticut unionized workers OK labor contract-Gov

Thu Aug 18, 2011 8:03pm EDT

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By Joan Gralla

NEW YORK Aug 18 (Reuters) - Connecticut's unionized state workers ratified a new cost-cutting contract, accepting bigger penalties for retiring early and agreeing to help pay for healthcare, just four days before thousands of lay-offs would have taken effect, the governor said on Thursday.

"The real value of this agreement lies in the $21.5 billion it will save taxpayers over the next 20 years in the form of lower healthcare and retirement costs for state employees," Governor Dannel Malloy, a Democrat, said in a statement.

"When you negotiate in a respectful manner real fundamental change is possible," he said in a webcast news conference.

The former Hartford mayor often contrasts his approach with that of his peers. One year before the U.S. presidential elections, the list of possible GOP candidates includes New Jersey Governor Chris Christie, who has blasted public unions.

Malloy has differed with many of his peers by closing the state's deficit with tax hikes, in addition to spending cuts.

Under the new contract, Connecticut public workers will have to work longer and be older to retire, wait 10 years instead of five to get retiree health benefits, and make a 3 percent contribution to a health care trust for a decade.

State workers hired after July 1 will not get longevity payments, will have to work 15 years to qualify for retiree health benefits and their pensions will reflect their last five years of service instead of the highest-earning three years.

Saying Connecticut's government still has too many layers, Malloy said there could be more agency consolidations.

Some lawmakers have doubted that the contract will succeed in closing a $1.6 billion budget gap. Some recalculations will be needed because the contract was approved later than expected, Malloy said, adding: "We will spell out over time how we are reaching those savings."

In June, the 45,000-strong State Employees Bargaining Agent Coalition rejected the labor contract. The 15-member group responded by relaxing its rules to make it easier for members to approve the accord, and clarified and improved some of the terms, said Matt O'Connor, a union spokesman.

For example, almost all of the union members will have four years of job security and will no longer face the risk that their pay or benefits will be pruned when their contract expires in 2017.

Malloy -- who had threatened even more draconian budget cuts if the contract was again spurned -- said Connecticut's politicians could never again put the state's finances in peril by approving overly generous pay and benefit packages, noting the state would follow the strict Generally Accepted Accounting Principles. (Reporting by Joan Gralla; Editing by Dan Grebler, Bernard Orr)

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