Lamont, lawmakers dodged spending cap to pump $20M into public-private school partnership

Some state officials already have balked at the decision to exempt a public-private partnership investing millions of dollars in Connecticut’s struggling schools from disclosure and ethics laws.

But it turns out the first $20 million in public funds Gov. Ned Lamont and the legislature dedicated to this venture also won’t be subject to the new budgetary spending cap enacted just two years ago.

Lamont’s budget director, Melissa McCaw, confirmed in a recent letter that revenues will be transferred to the Partnership for Connecticut — a nonprofit, non-stock corporation overseeing the state’s initiative with hedge fund giant Ray Dalio’s philanthropic foundation — rather than appropriated from the General Fund.

The plan Dalio and Lamont unveiled back in April calls for Dalio Philanthropies to contribute a total of $100 million over the next five years, for the state to match that amount, and for both entities to attempt to raise a third $100 million for impoverished school districts from other private sources.

At that time Lamont said the first contribution of public funds toward this project — $20 million owed in the 2019-20 fiscal year — would be appropriated from the 2018-19 budget surplus.

Whether funds are drawn from the surplus, tax and fee receipts, or most other sources, they usually count against the spending cap when they are included in the budget.

But the $21.3 billion budget Lamont and his fellow Democrats in the legislature’s majority approved in June barely squeezed under the cap by a razor-thin $200,000.

In other words, had Connecticut’s first $20 million payment to this public-private venture been financed with surplus dollars, this year’s state budget would have burst the cap by $19.8 million.

Rep. Vincent J. Candelora, R-North Branford, a veteran member of the legislature’s finance committee, raised concerns about the intercept in a recent letter to the administration.

“We put the cap in place to discipline ourselves as a legislature,” Candelora told the CT Mirror on Tuesday, adding he was surprised. “We’ve all recognized over the years the dangers of intercepts and how it could lead to bad fiscal policy. I think we all presumed the $20 million per year pledged to this [partnership] would be considered an appropriation and therefore subject to the cap.”

Candelora added that circumventing the budgetary spending cap in the first year of a five-year venture might leave other potential, private donors skeptical about the state’s ability to fund this venture over the long haul.

“The legislature doesn’t have a great track record of keeping its promises,” he said.

Chris McClure, spokesman for the governor’s budget office, said the partnership represents  “a unique opportunity for the state to collaborate with the private sector and leverage tens of millions of dollars to help our schools,” focusing on districts most in need.

“This is another step toward closing the achievement gap in our state and giving our students and teachers the tools and resources they need,” McClure said. “By improving the access and quality of education in our less fortunate communities, we will be giving those students a better chance to succeed, which will have generational benefits.”

A spokeswoman for Dalio Philanthropies referred all questions about the revenue intercept to the Lamont administration.

Designed to keep the overall budget increase each year in line with the growth in personal income, the spending cap — in one form or another — has been a part of state government finances since 1991.

The cap has always had built-in exceptions. For example, contributions to the pension systems currently are exempt.

And while there’s a formal process for creating new exceptions, it is unpopular, politically risky and therefore, rarely employed.

A more common route for getting around the cap is an accounting maneuver known as a “revenue intercept.”

To understand this concept, think of the state budget as a box of money, and the cap as a limit on what can be spent out of it. The revenue intercept occurs if the legislature and governor “intercept” tax receipts before they can be placed in that box and instead transfer them to a program outside of the budget — such as the $20 million transferred to the Partnership for Connecticut.

Those intercepted dollars don’t count against the cap since they never were assigned — from an accounting standpoint — to the budget in the first place.

Intercepts usually are used to exempt large new spending programs that enjoy bipartisan support and are designed to benefit most communities.

One example involves some of the supplemental payments sent to Connecticut’s hospitals as part of the provider tax system. Another involves the municipal grant program created in 2015 to share sales tax revenues with communities.

But Republican legislators largely have been critical of the special conditions created to support the partnership with the Dalio Foundation. The governing board for the Partnership for Connecticut, though it contains state officials, is exempt from state disclosure and ethics rules.

The administration has not announced the board’s first meeting date yet, though a Lamont spokeswoman has said it will likely be held later this summer.