CT spending cap is unique and, some critics say, among the toughest

Like about half of the states in the nation, Connecticut has imposed a cap on the amount of money the state government can spend.

But each state has approached the problem of controlling the spending habits of its governors and legislature differently, and Connecticut’s spending cap is unique in a number of ways.

A study by the Office of Legislative Research conducted in 2013 found that the most common type of spending cap ties the growth in a state’s budget to growth in the state’s population, personal income or inflation.

Washington state, for example, limits increases in spending to the 10-year average growth in personal income.

Other states, including Delaware and Rhode Island, don’t use personal income as a guide but limit spending to a percentage of projected revenue for the next fiscal year.

Connecticut is the only state that limits growth to the average percentage growth in personal income over the last five years or the rise in the Consumer Price Index over the preceding 12 months, whichever is greatest.

Seven states, including California and Utah, modify their caps based on population changes. Connecticut does not.

All states exclude certain funds from their caps. Connecticut is among five states that exclude debt service payments, that is, the interest paid on bonded debt.

That helps Connecticut boost its transportation funding, most of which is raised through bonds and is used to leverage federal funds for transportation improvements.

What federal money is under the cap?

Most states exclude the money they receive from the federal government from consideration.

But not Connecticut. It places some federal programs under its cap, including welfare and other programs that bring in nearly $1.3 billion a year from Washington.

There’s a reason for this.

When the cap was created during the administration of former Gov. Lowell P. Weicker, there were lawmakers who wanted to stop Connecticut from creating new programs with federal grants, only to be forced to pick up the tab for those programs if the federal government stopped funding them.

So Connecticut put a number of federal programs — but not all of them — under the cap, even if the federal government eventually reimburses the state for all or most of the cost.

Many federal social service programs are still under the cap. That fuels criticism from Connecticut advocates for those programs, who say the state’s spending cap is one of the most restrictive in the nation.

In 2007, the Connecticut Heath Foundation issued a report that said roughly 80 percent of the state’s expenditures were under the cap. The average in other states was about 50 percent, the report said. But there have been alterations to Connecticut’s spending cap since then.

Critics say using a five-year average of personal income growth to set the cap is too long and assures that budget growth is divorced from the true state of the economy. After a recession, they argue, the cap’s restrictions on state spending will always lag behind the growth of the economy.

Nick DeFiesta, fiscal policy fellow at Connecticut Voices for Children, recommends either a shorter or a longer cap computation. A 10-year average, such as the one Washington state has, would allow a better averaging of personal income, and a three-year cap would avoid the problems of a boom and bust economy, he said.

“It is crucial that government respect the will of the people to limit spending, but the way the cap was constructed makes it more difficult to fund the programs and services that help the most vulnerable of us,” he said.

Most federal programs that are still under the cap don’t grow much, so they don’t put too much pressure on the cap.

Federal programs that have grown quickly – including food stamps and home heating assistance – are not counted under the cap.

The last fast-growing program that was under the cap was Medicaid. But when the Affordable Care Act expanded Medicaid coverage in the state in 2013, Gov. Dannel P. Malloy removed the federal share of the program from under the cap. Medicaid is funded jointly, on about a 50-50 basis by the federal government and the state, and is one of the costliest programs in the state budget.

The only other states that include some federal programs under their caps are California and Colorado, and they only count their state’s part of federal cost-share programs.

 A Taxpayer Bill of Rights

California, Colorado, Connecticut, Indiana, and New Jersey exclude funds they must spend to comply with a federal mandate or court order.

About 10 states exclude emergency funds from their spending limitations; Connecticut is among the states that do not.

Some states exclude grants and gifts from their caps; Connecticut does not.

While critics in the state say Connecticut’s cap is severe, Colorado’s is reputed to be the toughest. Under Colorado’s “Taxpayer Bill of Rights,” or TABOR, state and local governments can’t raise taxes without voter approval or spend revenues without voter approval if revenues grow faster than the rate of inflation and population growth. Excess revenues must be refunded to taxpayers.

In nine states, a spending cap has been made part of the state’s constitution. Twelve states have statutory spending caps. The remaining four states, including Connecticut, have both constitutional and statutory provisions. Connecticut’s legislature can vote to modify the state’s cap with the support of a super-majority in both Houses.

But DeFiesta said considering changes in the cap is “a politically fraught debate.”

Ben Barnes, secretary of Connecticut’s Office of Policy and Management, said the spending cap is needed to prevent governors and legislatures from spending too much money, even in good times when revenues from taxes and other sources are pouring into state coffers.

“It moderates the desire to go to the store when you get a bonus,” he said.