After nearly a decade of leaning heavily on governors to make some of the toughest cuts in the state budget, the General Assembly is looking to tackle more of the hard choices by itself.
And while those choices are relatively manageable now — while Connecticut is amassing record-setting surpluses — it could prove more difficult in a few years when billions of dollars in federal coronavirus relief have been exhausted.
At issue are savings targets, often involving hundreds of millions of dollars that the legislature directs the governor to achieve — once the budget is in force after the July 1 start to the fiscal year. These savings are termed “lapses” because the unspent dollars lapse back into the budget reserve.
“I think the lapses are a way of giving more control to one branch of government, and I think it’s got to be an equal discussion,” said Rep. Toni E. Walker, D-New Haven, longtime House chairwoman of the Appropriations Committee.
“We just think it’s wiser to just get rid of the unallocated lapses,” said Sen. Cathy Osten, D-Sprague, the other co-chair of the Appropriations Committee. “There is no reason for them.”
Savings targets dominated budgets over the last decade
But lapses have long been a component in Connecticut’s finances and — until recently — have played an increasingly essential role.
After legislators — who write the budget — appropriate funding for each agency and program, they aren’t finished.
They assume an entity as large as state government — with dozens of departments, more than 40,000 employees and hundreds of programs — is going to save money over an entire fiscal year. Workers will resign or retire and might not be replaced immediately, which produces a savings. New programs might start late. And sometimes agency operations simply prove more efficient than expected.
The opposite also is true at times, and departments amass millions of dollars in cost overruns.
Nonetheless, some level of efficiency-related savings is generated every year, and legislatures and governors traditionally try to project how much — and subtract that savings from the budget’s bottom line even before the fiscal year has begun.
In tough fiscal times, legislators tend to get more aggressive in the savings targets they assign.
For example, legislators approved a $20.7 billion General Fund for this fiscal year — assuming Gov. Ned Lamont’s administration saves $54 million operating government. The savings target swells next fiscal year to $127 million, driven largely by a new effort to reduce the state workforce and use technology to replace retiring employees.
But those targets are modest compared to the savings benchmarks faced by Lamont’s predecessor, Dannel P. Malloy, who was governor from 2011 through 2018.
For example, lawmakers ordered Malloy to find an average of $871 million per year in savings in his first biennial budget, a massive target driven largely by a major union concessions deal.
But even when labor givebacks weren’t in play, lawmakers set the savings bar high for Malloy.
Between the 2013 and 2016 fiscal years, General Fund savings targets averaged $184 million per year.
Connecticut was struggling in the 2010s with a sluggish recovery from the Great Recession of 2007-09, and state officials grappled year after year with budget deficits.
Malloy said repeatedly the hefty savings targets were the legislature’s way of making him the budgetary bad guy. Rather than cut specific programs — and face the resulting public criticism — lawmakers would set aggressive savings mandates and let Malloy do the fiscal dirty work.
But Walker said the larger targets weren’t about passing the buck. Rather it was the easiest way for legislators and the governor to settle on a bottom line for the budget when they couldn’t agree on the specific spending cuts to get there.
Regardless, Walker and Osten say, that’s not the fiscal situation now.
Connecticut has a record-setting $3.1 billion in its rainy day fund, is projecting billions of dollars in additional surplus dollars over this fiscal year and next and hasn’t faced a major tax hike since 2015.
Not all budget cuts are created equal
More importantly, legislative leaders say, achieving these savings targets sometimes leads to painful budget cuts that legislators never intended.
To ensure that the mandated savings is achieved, the governor’s budget office orders “holdbacks.” Shortly after the fiscal year begins in July, a portion of funding for most agencies and programs is held back, spreading responsibility for the savings mandate throughout state government.
Most of these individual “holdbacks” total in the thousands of dollars. And even the largest — $4.4 million from the Judicial Branch — represents less than 1% of its overall budget for the current fiscal year.
But legislative leaders say not all budget cuts are created equal, and sometimes even the small ones hurt.
Sen. John Fonfara of Hartford was disappointed in 2019 when almost $97,000 was held back from the Charter Oak Family Health Center, a clinic on Grand Street in the capital city.
Fonfara had battled for funds to help the clinic expand hours to take pressure off the emergency room at nearby Hartford Hospital, which was struggling with long wait times. And while $97,000 is a minuscule portion of a $20 billion-plus state budget, it was one-fifth of all state funds earmarked for the clinic that year.
“I was very clear as to what we were trying to do here,” Fonfara said, calling the holdback process “frustrating” and inefficient at times.
Walker said she feared a $100,000 in state funding held back this past summer from Fair Haven Community Health, a clinic in her home city, would harm a facility that is the primary source of health care for many residents.
And Osten objected to a small holdback this summer from a jobs pipeline program to increase nurses and other health care workers, calling it essential during a pandemic.
The Lamont administration released more than $17 million of funds held back this year for Fair Haven, the jobs pipeline and many other programs after hearing Walker and Osten’s concerns.
The leader of the Republican minority in the House of Representatives, Vincent J. Candelora of North Branford, said the Democratic majority’s current interest in making tough budget choices is surprising given the past decade.
The governor is required by law to try to achieve savings if they are mandated in the budget. Democratic legislators shouldn’t assume that Lamont, also a Democrat, won’t carry out his responsibilities, Candelora said.
“It’s the old adage: be careful what you wish for,” the House GOP leader added.
The administration — which projects state finances will finish almost $1.8 billion in the black this fiscal year — said that if legislators want to play a more active role in defining spending cuts going forward, that’s not a problem.
“That would be a welcome change,” said Office of Policy and Management Secretary Melissa McCaw, Lamont’s budget director.
And while the Wall Street credit rating agencies have cited the state’s strong budget management skills in recent ratings upgrades, “unallocated lapses are not necessary for budget passage for the Executive Branch,” McCaw said.