As legislators learned Tuesday state budget surpluses would top or approach $1 billion through 2026, leaders said Connecticut must scale back an aggressive savings program that critics say is choking core programs.
The program that forces legislators to save a portion of volatile income and business tax receipts will capture $1.12 billion this fiscal year — $645 million more than originally anticipated, according to a joint report from Gov. Ned Lamont’s budget staff and the legislature’s nonpartisan Office of Fiscal Analysis.
Originally expected to capture slightly more than $450 million in each of the next two fiscal years, the volatility adjustment now is projected to collect almost $1.2 billion in 2024-25 and $910 million in 2025-26.
And none of those projections includes increases in federal Medicaid grants and miscellaneous revenues that will boost this fiscal year’s operating surplus from $86 million to $257 million.
“This might be the most shocking consensus revenue numbers we’ve seen in years,” House Speaker Matt Ritter, D-Hartford, said during a mid-morning press conference. “Folks, the state is in a very solid financial position.”
But the speaker and Senate President Pro Tem Martin M. Looney, D-New Haven, who commented during separate interviews, also said Connecticut needs to adjust the black ink it’s piling up. Because while it bolsters budget reserves and reduces pension debt, legislators are scrambling to find a fraction of this revenue boon — about $400 million — to avert further cuts next fiscal year in higher education and human services.
“I think we absolutely need to reassess the volatility threshold,” Looney said, adding no one envisioned the state would be forced to save $1 billion or more annually when this system first was approved in October 2017.
With the latest projections, the overall state budget surplus this fiscal year is projected to exceed $1 billion for the fifth time in six years, according to records from the state comptroller’s office. (In 2019-20, when the coronavirus first struck Connecticut, the state still finished a healthy $569 million in the black.) And the numbers say two more $1 billion surpluses are achievable by 2026.
This volatility program, along with new caps on spending and borrowing and other budget controls, helped end a string of deficits and “control the rollercoaster” effect that volatile revenues can have on state finances, Looney said. The state’s considerable pension debt also is considerable, totaling more than $37 billion entering this year, according to Lamont’s budget office.
But given the huge savings it’s forced every year, “I think it’s quite possible we may be defining certain revenue as volatile that should be [considered] predictable,” Looney added.
Majority Democrats in the House and Senate increasingly have joined other critics of this system over the past year, arguing the savings program is poorly designed. They said it inaccurately classifies millions of dollars of stable revenue as “volatile” to the detriment of education and human services.
Legislators have been scrambling to find extra funds to bolster these core programs next fiscal year. Because these “volatile” revenues can’t be touched, they’ve been stripping emergency federal pandemic aid from other programs and re-directing to public colleges and universities and social services for people with disabilities.
No one in the legislature has proposed repealing this savings system but many have said it should be adjusted to allow more funds to be spent.
Ritter didn’t propose any specific changes Tuesday to the system that currently prevents legislators from spending more than $3.78 billion of the annual receipts from quarterly income tax filings — which chiefly reflect capital gains, dividends and other investment earnings by wealthy households — and quarterly filings by certain partnerships and other businesses that pay the pass-through entity tax.
But the speaker said he expects legislators will be ready to revisit a threshold next year that hasn’t be re-evaluated since 2018.
We need to, and we’ll think about in the off-session,” he said, predicting the need for a closer look would become clear later Tuesday as revised data on how much the state is saving is released. “This number will show that I think it’s there might need to be an adjustment.”
Legislators, who renewed these budget controls unanimiously in February 2023, agreed in contract language with the state’s bond investors not to repeal the system outright before July 2028.
Adjustments to the rules can be made with a 60% vote of approval in the House and Senate and with the approval of the governor. And Ritter noted Tuesday that any such discussion is “a very controversial thing.”
Lamont, a Greenwich Democrat and fiscal moderate, has opposed changing any of the budget controls, which he frequently refers to as “fiscal guardrails.”
“This consensus revenue forecast reinforces that we are on the right path and that the progress we have made should not be undone by reversing course from what has worked the past few years,” Lamont said Tuesday. “ … We continue to make historic levels of investment in early childhood, K-12, and higher education, helping our nonprofit providers, and building new housing. This is the future we are delivering to our children and grandchildren, and one in which we can all be proud.”
His budget spokesman, Chris Collibee, added that “the governor is always willing to listen to ideas – from both parties – that grow Connecticut, but conversations regarding revenue adjustments in the next biennium are premature.”
But Lamont’s critics counter that the “historic levels of investment” the governor cites are, in many cases, years of state payments that failed to keep pace with inflation. In other words, though state funding has increased over time, core programs effective support has grown stagnant or has shrunk.
Connecticut for All, a progressive coalition of more than 60 faith, labor and civic organizations, praised Ritter and Looney for calling for reforms and chastised Lamont for not joining them Tuesday.
“Adjusting Connecticut’s volatility cap is a step toward fiscal responsibility, a concept seemingly lost on Gov. Lamont,” said Leslie Blatteau, chairwoman of the coalition’s steering committee. “He would rather cling to his guardrails and borrow from Wall Street, further reflecting his disconnect with working people’s financial realities and undermining the long-term economic health of our communities.”
House and Senate Republican leaders also have been wary of changing any of the parameters of the savings program.
House Minority Leader Vincent J. Candelora, R-North Branford, has said on several occasions that Democratic legislators and the governor should be focusing more on finding ways to curb spending in the next budget, rather than seeking for ways to work around the guardrails, such as by spending emergency federal pandemic aid – which can be spent outside of the budget.
“I know the governor and the Democrats are trying to negotiate their way out of this and pretend that they’re honoring these guardrails, but I am very concerned that they are setting up for next year these guardrails to fail,” he said.
This story was originally published by The Connecticut Mirror on April 30, 2024.
