Gov. Ned Lamont's first budget address to the legislature on Feb. 6, 2019
Gov. Ned Lamont giving his first budget address to the legislature one year ago. Wednesday, he will outline his spending priorities for the coming year. Ryan Caron King / Connecticut Public Radio

The new state budget proposed Wednesday by Gov. Ned Lamont will likely spur considerable debate — despite lacking major tax hikes or deep spending cuts.

That’s because for the first time in history, Connecticut is sitting on a multi-billion-dollar reserve, and a tight spending cap that can’t be pried open by lawmakers.

That is, unless Lamont is willing to employ the gimmicks or declarations of fiscal emergency that his predecessors have used to circumvent the cap.

That appears unlikely.

“The budget Governor Lamont will present to the General Assembly Wednesday is fully compliant with all of the existing caps and does not engage in the game-playing and gimmickry that have haunted our state for decades,” Chris McClure, spokesman for Lamont’s budget office, said last week. “His budget proposal is honestly balanced and reflects his continued effort to be a prudent and responsible steward of our state’s resources.”

“The budget … is fully compliant with all of the existing caps and does not engage in the game-playing and gimmickry that have haunted our state for decades.”

Chris McClure
OPM Spokesman

Since he took office in January 2019, Lamont has insisted Connecticut rebuild its rainy day fund, the chief defense against the next recession. This is more vital here than in other states, Lamont and others contend, since Connecticut’s income tax receipts — nearly one-third of which come with investment-related earnings —historically have been highly volatile.

“The steps we have taken to stabilize our pensions, reduce our borrowing, decrease our reliance on volatile revenues, and help build the largest rainy day fund in history have been noticed on Wall Street,” McClure said, adding that Connecticut’s standing with credit rating agencies has improved over the past 13 months.

But the state’s reputation on Wall Street isn’t the only thing that’s changed.

Many, including some of Lamont’s fellow Democrats in the legislature, insist that social services, municipal aid, higher education, transportation and other priorities have taken the brunt of the state’s budget woes over the past decade as a sluggish recovery and surging pension and other debt costs have drained resources.

And critics who want to restore funding for these priorities have a hard time hearing “no” when Connecticut has $2.5 billion in the bank — and nearly $300 million more set to be deposited after next summer.

“This is not the conversation we should be having,” Sen. Saud Anwar, D-South Windsor, said last week, referring to a Lamont agenda that, so far, hasn’t included more resources for community-based nonprofits that treat the disabled, abused, poor and patients struggling with addiction. “But misery doesn’t sell. Sadness doesn’t sell.”

Andrea Ferrucci, chairwoman of the CT Community Nonprofit Alliance, asking Gov. Ned Lamont last week to increase funding to nonprofit social service agencies by $92 million a year. With her is Sen. Saud Anwar of South Windsor (far left) and Chris Westphal, a patient at a Waterbury nonprofit agency.

Anwar stood with nonprofit leaders last week to ask Lamont to gradually increase state funding for the hundreds of nonprofits who deliver the bulk of Connecticut’s social services. The nonprofits are seeking an average increase of $92 million more in funding each year for the next five years to mitigate nearly two decades of state support that failed to match inflation.

At first glance, the math works, even without touching the $2.5 billion in the reserve.

“This is not the conversation we should be having. But misery doesn’t sell. Sadness doesn’t sell.”

Sen. Saud Anwar, D-South Windsor

Nonpartisan analysts project Connecticut will add $300 million to its reserves next September through a program that forces the state to save a portion of its income tax receipts tied to investment earnings.

It would appear easy to carve $92 million out of that windfall to give to the nonprofits next fiscal year.

But it’s not that simple.

The preliminary $22.1 billion budget Lamont and the legislature approved last May for the 2020-21 fiscal year can be amended. Lamont’s plan, due Wednesday when the 2020 legislative session begins, essentially involves his proposed adjustments.

But that plan falls just $5 million under the state spending cap. That’s a razor-thin 1/40th of 1% of that budget’s General Fund.

So if lawmakers want to give $92 million to the nonprofits, Lamont expects them to propose about $92 million in matching cuts. Whatever spending you add in one place, you take off somewhere else.

And that’s not the only spending proposal.

Senate Democrats called two weeks ago for Connecticut to replenish federal funds that Planned Parenthood clinics have lost for refusing to follow a Trump administration gag rule.

Senate Majority Leader Bob Duff, D-Norwalk Jacqueline Rabe Thomas / CTMirror.org

Senate Majority Leader Bob Duff, D-Norwalk, wasn’t dismayed about the spending cap and insisted the $2 million proposed for Planned Parenthood would be approved.

“We wouldn’t announce this today if it wasn’t something we were serious about,” he said.

Democratic and Republican lawmakers also have talked about restoring funds for those nursing homes targeted to lose state aid due to large numbers of vacant beds.

Legislators typically propose tens of millions of dollars in additional spending during the second year of a biennial budget cycle, and more requests are expected to come forth after the session opens Wednesday.

To mitigate these spending impulses, Connecticut has long had a cap.

First enacted in 1991 to mollify voter outrage over the state income tax, the cap was designed to keep spending growth largely in line with the growth in personal income.

One year later, voters overwhelmingly ratified an amendment to the Connecticut Constitution stipulating in that document there shall be a cap. But legislatures never implemented that provision, instead continuing to follow the statutory cap — sort of.

The problem, for budget purists, is that there were plenty of ways around this cap.

For one, the governor and legislature could legally exceed it with a 60% vote of approval by the House and Senate. Republican Govs. John G. Rowland and M. Jodi Rell did this frequently during the 1990s and 2000s. But their administrations included many years of a robust national economy that help keep state tax hikes to a minimum. 

Govs. M. Jodi Rell and John G. Rowland often approved spending in excess of the cap during good economic times in the 1990s and 2000s.

Rowland, Rell and the Democratic legislatures they worked with also routinely short-changed pension contributions, which helped to keep taxes down and public attention away from the cap — while shifting debt costs, plus interest, onto future generations.

Democrat Dannel P.Malloy, who became governor in January 2011 and twice ordered major tax hikes, refused to legally exceed the cap during his eight years in office.

But Malloy, who paid far more into the pensions than his predecessors did, found other ways to get around the cap.

For example, rather than pay money directly to charter schools, Malloy funneled tens of millions of dollars to the communities where the schools were located — and instructed those municipalities to then forward the funds to the charter schools. Why the extra step? Because many charter schools are located in poor cities, and aid to distressed municipalities was exempt from the cap.

Gov. Dannel P. Malloy giving his budget address in 2017. Kyle Constable / CTMirror.org

Malloy and lawmakers also moved hundreds of millions of dollars in federal funding for health care outside of the budget, thereby clearing space under the cap.

Perhaps the previous governors’ most common route around the spending cap was via the state’s credit card. Borrowed dollars are spent outside of the budget — and therefore don’t impact the cap. And while payments on bonded debt are within the budget, they are cap-exempt.

Connecticut pays cash for most aid to cities and towns, but under Malloy municipal grants funded with borrowed dollars rose from $30 million per year to $150 million.

By 2017, Connecticut was borrowing about $150 million per year to make payments on borrowing.

Lamont pledged not to add to Connecticut’s history of spending cap gimmicks.

And even if there were more room under the cap next fiscal year, Lamont says Connecticut needs to preserve that rainy day fund to guard against the next economic slip.

“Remember, the rainy day fund is to make darn sure that when there’s a rainy day I don’t have to cut funding for services like this at a time of most need,” Lamont said last November after addressing nonprofit social service agencies at their annual convention. 

And Lamont has some allies across the aisle to help him defend the spending cap.

Minority Republicans in the House and Senate both say they aren’t interested in voting to exceed the spending cap.

“We’ve finally got some money in the rainy day fund. We finally have a cap that can help control our expenses. I’m not about to go back on those.”

Senate Minority Leader Len Fasano, R-North Haven

Democrats currently hold 90 out of 151 seats in the House and 22 out of 36 in the Senate, almost matching the precise numbers needed — 91 and 22 —  to achieve the 60% vote needed to legally exceed the cap.

Even in the Senate, where Democrats already hold 60% of the seats, the odds of all party moderates going along with a cap override are slim, meaning GOP cooperation would be needed in both chambers.

Republican leaders say there’s no chance of that.

When Democrats and Republicans in the legislature ended 10 months of budget gridlock and approved a bipartisan plan in October 2017, the GOP insisted on a tighter cap. The exemption for aid to poor communities is gone.

Republicans also joined moderate Democrats in pushing hard for the new requirement to save a portion of income tax receipts tied to investment earnings.

“The various capping structures that were put into place [in 2017] have created a new approach to budgeting in the state of Connecticut,” said Deputy House Majority Leader Vincent J. Candelora, R-North Branford. “I’m worried the Democrats are going to try to go back, to put some bad fiscal policies into place, and that’s something we’re going to fight.”

Sen. Minority Leader Len Fasano speaking against the Democrats’ budget during the 2019 legislative session. mark pazniokas / ctmirror.org
Sen. Minority Leader Len Fasano speaking against the Democrats’ budget during the 2019 legislative session. mark pazniokas / ctmirror.org

“I think we’re going to have to guard against one attempted end-run after another,” said Senate Minority Leader Len Fasano, R-North Haven. “We’ve finally got some money in the rainy day fund. We finally have a cap that can help control our expenses. I’m not about to go back on those.”

But most Democratic legislators say the GOP leaders’ comments are little more than posturing. While Republicans criticized the two-year budget adopted last May — which featured more than $300 million in tax hikes each year but closed major projected deficits — the GOP didn’t even offer its own budget proposal.

Regardless of the partisan sparring, the Lamont administration says the cap is budget reality, and legislators must deal with it.

“Governor Lamont will not back down from his budgeting approach, viewing this through a longer less and not simply an annual or biennial, short-term exercise,” McClure said. “The administration is focused on putting Connecticut in the best possible position for the next decade through sound financial management.”

Avatar photo

Keith M. PhaneufState Budget Reporter

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

Join the Conversation

8 Comments

  1. The previous governor engaged in just about every gimmick Sideshow Ben could come up with and ran the most corrupt administration Connecticut has ever seen. Different from Rowland,yes. Pretty much the same end though regardless of which party one belong to.
    Sadly, Ned chased/bought this office but lacks the “grooming” that mayors and legislators get.
    Too bad. Things will never change, and those who can,leave the state.

  2. What happens when the hospital budget begins increasing expenses and cutting revenues substantially? What happens when a court decides that the state must provide help to people who don’t receive it from non-profits because the providers can’t afford it?
    Saying that future budgets are stable is an exaggeration.

    1. I agree. Future state budgets have a structural deficit built in due to the unfunded state union retirement liabilities coming due in real time. This will be exacerbated by the large cohort of retirement-eligible workers in the next few years. Combined with the insatiable appetite for spending/taxing/borrowing in Hartford and the potential for another recession, future state budgets are anything but stable. The rainy day fund, while sizable, could be wiped out easily in one budget biennium.

      Count on more budget shenanigans until enough of these plunderers get shown the door in elections. That’s not likely in one-party Connecticut but one can always hope.

      1. I agree that the rainy day fund could be used in a single year. The only effect will be to delay taxes/cuts for some months.
        That’s why the non-profits are wrong to tie their need for new funds to current surpluses. They have a much better argument that if they can’t afford to provide required services, then state employees will have to do the job.
        The coming retirements will likely result in new hires. Even if state employee service providers could be replaced, it’s likely that the non-profits can’t afford to add to their caseloads.

  3. Our focus should be reducing the $120 Billion in underfunded liabilities by questioning the legality of all contracts that were passed since 1992.

    Any contract that required accurate financial statements provided by government should be reviewed because they were not counting the billions in borrowing as spending.

    It is obvious that once we borrow money but then SPEND it on a government program that the debt then turned to spending and that violated our constitutional spending cap for decades. Politicians knew they were “gaming the system“ and billions in future benefits need to be questioned in court. If they are not Connecticut will not recover, we have created generational destruction and younger people know this.

    1. How quickly would a judge reject this argument?
      The case would probably be resolved before a lunch break.
      The spending cap was non-existent until recently, by the way. And, as reported, legislators have found a large number of ways to get around their (inadequate) version of it for a long time.

      1. I guess it depends on the lawsuit. A hypothetical example … if we (the state) default on a future payment wouldn’t a valid legal argument to reduce that payment be – the original contract was never valid in the first place because the financial data used during negotiations of that contract was false. The premise is once debt “was turned into spending” over the cap based on incoming taxable revenue collected in that year it was a violation of the state constitution. Can a corporate lawyer reading this chime in?

  4. Lamont pledged not to add to Connecticut’s history of spending cap gimmicks.

    That’s not the same thing as ENDING the gimmicks. Until that is done, the ‘spending cap’ is just a sick joke on the taxpaying citizens of CT.

Leave a comment