Leaders of the Democratic legislative majorities, intent on seeking greater education aid for municipalities, are urging Gov. Ned Lamont to relax some of the fiscal restraints that contributed to the state’s huge surpluses and the governor’s overwhelming reelection in 2022.
Lamont and Democratic leaders, who opened talks Wednesday, downplayed their differences in interviews Thursday, noting bipartisan support for maintaining a so-called volatility cap — one the fiscal “guardrails” that ensured that a run of surpluses was used to pay down debt and fill budget reserves.
The Democratic legislative leaders are asking Lamont to forfeit a fraction of the savings program that has helped to amass more than $9 billion in surpluses over the past five years, freeing money that can bolster education aid for cities and towns.
Though details still are being developed, leaders want to retain the linchpin of the savings program, which caps lawmakers’ ability to spend quarterly income and business tax receipts at slightly more than $3 billion per year.
Instead they want to scale back a secondary savings measure, potentially freeing $180 million or more annually for local education.
Senate President Pro Tem Martin M. Looney, D-New Haven, described the talks with Lamont as “very cordial,” and House Speaker Matt Ritter, D-Hartford, said it was an “intellectual conversation, not an adversarial one.”
Lawmakers specifically want to reduce districts’ longstanding over-reliance on municipal property taxes and possibly also address short-term challenges to funding school meals programs.
The 2017 General Assembly approved a 10-year plan to ramp up the Education Cost Sharing grant, the state’s chief program for supporting local education.
But the program, which will distribute $2.2 billion this fiscal year and is projected to reach $2.3 billion by 2026, still is not hitting all benchmarks in a formula that analyzes districts’ needs based on wealth, population and other factors.
Meanwhile, the coronavirus pandemic and high inflation have taken a heavy toll on local school budgets. And with state government’s coffers overflowing, many legislators have said the ECS fix doesn’t have to wait until 2027 or later.
“It’s critical. The time has come,” Ritter said. “It’s been a wish list of my caucus for some time, and it’s the time to do it.”
Sources say legislators could be ready to act as soon as February to make this fix, with ECS grants expanding over the course of the state’s next two-year budget cycle.
But the plan does not involve tampering with one of the governor’s highest priorities, the so-called “volatility adjustment” that protects quarterly income and business tax receipts.
That savings program has done nothing but boom since its enactment in 2017, saving an average of $1.45 billion annually since then, according to the comptroller’s year-end reports. In the context of this fiscal year’s $22.1 billion General Fund, $1.45 billion represents a built-in cushion of 6.5%.
The volatility adjustment is the biggest reason why Connecticut holds a record-setting $3.3 billion in its rainy day fund and also made $5.8 billion in supplemental payments against its pension debt during this period.
More importantly, budget analysts for Lamont and the legislature project this program will capture an average of $1.35 billion per year through 2026.
But the governor has been reminding lawmakers that Connecticut still owes more than $88 billion over the long haul, involving unfunded pension and retirement health care obligations and bonded debt — a mess that stems chiefly from decades of poor savings habits between 1939 and 2010.
But there’s a secondary savings program that gets little attention.
Designed to stop legislators from creating budgets with no room for error, the revenue cap limited General Fund appropriations to 99.5% of projected revenues when it began in 2020.
This budget cushion has grown annually, and will max out at 98% by 2026. It is expected to save $280 million this fiscal year and could save $460 million, analysts say, three years from now.
Given the rainy day fund and all of the savings still coming from the volatility adjustment, could Connecticut spare the $200 million to $300 million annually that legislators are eyeing to assist local schools?
Lamont did not discuss specifics of Wednesday’s meeting with Democratic leaders, but said, “I think we've got broad agreement on where we want to go and keep within those fiscal guardrails. That's what's important to me.”
But are there differences?
“It’s still early, but ... you know I ran loud and clear on guardrails," Lamont said. "I think folks on both sides of the aisle heard that. And I think we're gonna get there.”
The governor, a Democrat in the first month of his second term, left little doubt he sees the volatility cap and fiscal discipline as a legacy that should outlive his time in office.
"I want to get the guardrails done, not just for this year, not just for the rest of my term, and see if we can get seven, eight, 10 years — really give people confidence we're gonna get our fiscal house in order, not just the last four years, but for the next 10 years.”
Lisa Hammersley, executive director of the School and State Finance Project, praised legislative leaders for their focus on equitable school funding.
“It is no stretch to say passing this bill would be a landmark achievement and truly life-changing for students, families, and educators across our state,” Hammersley added. “This historic investment in Connecticut’s future would ensure every student has access to a high-quality education that allows them to reach their full potential, help schools hire and retain high-quality teachers, and develop our state’s workforce to help our businesses and economy grow.”