Gov. Ned Lamont told a business audience Wednesday that Connecticut’s spending cap, one of the so-called fiscal guardrails that have constrained state spending in a time of record budget surpluses, is “sacrosanct.”
It was Lamont’s strongest defense of the spending cap, though he was not as definitive on another guardrail: a mechanism called the volatility cap that diverts certain revenues to budget reserves and paying down debt and pension liabilities.
The governor’s comments to the annual economic summit of the Connecticut Business and Industry Association in Hartford came as Democratic legislative leaders and social services advocates are pressing for greater flexibility, especially in the volatility cap.
The spending cap pegs what the state can spend to growth in personal income or inflation, metrics that Lamont says imposes a welcome and reasonable degree of discipline on government.
“I think it’s sacrosanct. I think it’s really important,” Lamont said. “As I said before, it’s not a straitjacket. It goes up with income to allow us to spend more as we earn more. And I don’t want to play any games with that.”
On the volatility cap, however, the governor seemed resigned to a coming negotiation in connection with the budget he will propose on Feb. 5, though he did not invite one. Rather than rule out any change, he articulated a broader standard: the volatility cap must remain sufficiently stringent to mitigate risk in an economic downturn.
Lamont said the state must avoid the yo-yo effect of past decades: Spending increases in good times; tax increases and spending cuts in bad times.
“The way I’m looking at it is, ‘What do I need to make sure this state is not going to be forced to cut the heck out of education spending or raise your taxes if we have a recession?’” Lamont said.
The concept behind the volatility cap, adopted in 2017 as part of a bipartisan budget deal, was that certain revenue sources vary wildly from year to year and should not be relied upon as a gauge of what the state can afford to spend.
It singles out quarterly income and business tax receipts that historically fluctuate and requires that revenue from these categories above $3.15 billion — the amount generated in the previous fiscal year — would be too unstable to spend and should instead be used to pay down debt or set aside in reserves.
The volatile revenue, however, has turned out to be no so volatile. The volatility cap has captured $1 billion every year since the law was passed, except for $530 million in the COVID year of 2020. The state now has $4 billion in budget reserves, a hedge against recession.
“We’re in good shape, and we have a little bit of room for flexibility,” Lamont said. “If you say I want to make sure that if we have a bust like we had with the dot-com bubble in ’01-’02, I want to make sure that we have in place the guardrails that mean we’re going to be able to weather that.”
Lamont called the 2008 recession “a knee-knocker,” one that required a massive federal government response to stave off widespread bank failures.
“I’m not sure you can save for the very worst recessions, just like you can’t build bridges for the 200-year storm, but you can do what you can reasonably,” Lamont said. “So that’s sort of where I am on the thought process of where we’re going to be going forward.”
Senate President Pro Tem Martin M. Looney, D-New Haven, offered no comment on whether he saw the spending cap as sacrosanct, but focused on the glimmer of flexibility on the volatility cap.
“I think it’s certainly an indicator of progress,” Looney said. “The governor is always looking to build a consensus, and the fact that he has now sort of created a separate position on one as opposed to the other, that we find encouraging.”
Serious budget talks have yet to begin.
“We’re at the beginning of this entire process, and we are, of course, looking at the volatility cap, at the level that that is set. We think in some ways, we have been counting volatile revenue that is actually pretty reliable,” Looney said.
Looney addressed Lamont’s comments after a news conference called to underscore the Senate Democratic majority’s support for a labor bill opposed by the governor: Opening jobless benefits to strikers after two weeks on the picket line.
Last year, Lamont vetoed a vaguely written bill that was intended to provide up to $3 million in state aid to striking workers without explicitly saying so. It would have drawn on a state fund and not rely on unemployment.
The governor said Wednesday he remains opposed to either approach, but Looney was not deterred. Democrats would press their case to the governor, noting that jobless benefits are available to strikers in New York and New Jersey.
“We’re going to appeal to his sense of justice and fairness and negotiate as we go along to make this law,” Looney said. “There’s no reason why Connecticut should be in a different position than New York and New Jersey, other progressive states with Democratic governors and majorities in their legislatures.”
By a vote of 9-4 on Tuesday, the Labor and Public Employees Committee voted to draft Senate Bill 8, which would provide jobless benefits for strikers and also regulate the use of quotas and biometric surveillance to speed warehouse workers.
The second portion, which is directed at Amazon, was drawn from a bill that did not get far last year. The bill would do what organized labor would like to accomplish through organizing.
“If a union were in place, these practices would not be allowed to go on. And we hope at some point soon, unions will be in place,” Looney said.
Senate Bill 8 has 19 co-sponsors, one more than necessary for passage in the 36-seat Senate. But a half-dozen Democratic senators, nearly one quarter of the 25-member caucus, did not sign on.
Republicans were unenthusiastic about either portion of the bill
“If these items are legislative Democrats’ top priorities, then their priorities are completely out of whack and out of touch,” said Rep. Steve Weir, R-Hebron, ranking member of the Labor Committee. “To reward unionized striking workers for going on strike automatically takes the side of Union labor instead of remaining neutral. Additionally, feigning concern over worker safety is just a ruse to hide the true intentions of my Senate Democrat colleagues which would be to force large companies like Amazon to unionize.”
Irene Tung, a labor researcher, told the committee at a public hearing last year that Amazon’s self-reported data to OSHA showed that its warehouse workers in Connecticut were injured at a rate of 6.3 injuries for every 100 workers.
Neither Amazon nor its Connecticut lobbyists offered testimony.
Lamont has no position on the warehouse portion of the bill.
He was applauded Wednesday at the CBIA economic summit as sensitive to the state’s economic climate, but he has sided with labor on key issues, including a higher minimum wage, minimal requirements for paid sick days and a ban on so-called captive audience meetings some employees use to thwart organizing.
This story was originally published by CT Mirror on Jan. 15, 2025.