As Connecticut lawmakers negotiate a new state budget this legislative session, it seems that one term keeps coming up: “fiscal guardrails.”
Wait, fiscal … what?
We get it. “Fiscal guardrails” is a term that doesn’t exactly roll off the tongue. But in terms of bureaucratic speak at the state Capitol, “fiscal guardrails” is actually pretty descriptive.
Enacted by Connecticut lawmakers in 2017 and extended again in 2023, the guardrails’ basic purpose is simple: to control spending and help develop a balanced budget.
The “guardrails” keep Connecticut’s finances on track. (Get it?)
At least, that’s the idea. But the reality is more complicated.
Some lawmakers have praised the guardrails for helping to stabilize state finances and set off budget surpluses. Others say the controls are starving critical resources from those who need it in sectors like education and health care.
Here’s what to know about fiscal guardrails, and why lawmakers aren’t likely to stop throwing around that term anytime soon.
It all comes down to the budget (and caps, caps, caps)
While Lamont didn’t explicitly address changing the guardrails in his recent state of the state address, he did allude to what he viewed as its positive impact.
“And by paying down these legacy costs, we have made state employee pensions more secure and we have freed up hundreds of millions of dollars in our budget to expand access to affordable child care, affordable health care, and expanded education opportunities,” Lamont said. “And we are just getting started.”
The guardrails have four main components, or “caps.” Here’s what they are.
- Spending cap – Limits state spending by restricting the legislature’s authority to make appropriations, according to the state Office of Legislative Research.
- Bond cap – Limits how much the state can borrow.
- Revenue cap – Limits projected revenues that lawmakers can allocate.
- Volatility cap – Limits the amount of revenue that lawmakers can allocate from volatile sources (such as estimated and final income tax revenue).
Zach Liscow is an economist and professor at Yale Law School who recently co-authored a detailed report breaking down the history, and the efficacy, of the state’s fiscal guardrails. He said one of the more updated rules is the volatility cap, for not spending too much when the state has a really good year.
“Instead, it can be put into the rainy day fund [to] help fund the pensions that will help us get out of the debt hole that Connecticut has long been in,” he said.
The report, from the Yale Tobin Center for Economic Policy and the Connecticut Project, says the constraints have helped build up Connecticut’s surplus, and helped pay down the state’s pension debt.
Still, there’s a lot more work to do.
A report from The Pew Charitable Trusts found Connecticut’s pension costs are still among the highest in the country, mostly because of decades of debt, as the Connecticut Mirror reported.
Why it matters now
As Connecticut assigned the last of its American Rescue Plan Act (ARPA) funds last year, there was already concern about lack of state funding for education, health care and social services.
One example? The state’s low Medicaid reimbursement rates. A new Connecticut Department of Social Services report highlighted the impact on health services for low-income residents.
“People in need are struggling to get behavioral health, dental and basic medical service,” said Gian-Carl Casa, president & CEO of CT Community Nonprofit Alliance. “It’s time to properly fund services. Connecticut can save, pay off debt and fund essential services. We have the money.”
Education is also a priority of Democratic leadership this session. But whether those funding challenges can be solved without adjusting the guardrails?
“We'll have those conversations,” House Speaker Matt Ritter said Monday at a Capitol press conference.
Study suggests room for change
Luke Bronin, the former mayor of Hartford and a co-author of the Yale report analyzing the guardrails, says the data also shows there’s room to change the policy.
“They've taken that revenue off the table for investment in maintaining the current services, or investing in the state and families and communities today, or in other types of future oriented investment.” he said.
Bronin said the data shows that with no more federal pandemic relief left to allocate, not adjusting the guardrails could mean big cuts for core services in Connecticut.
What we do know: lawmakers are going to keep talking about it, especially as committees debate bills, and Lamont unveils his budget proposal by Feb. 5.
