As a group of former state legislators, municipal officials and public policy analysts, we issue this urgent plea to the General Assembly and Gov. Ned Lamont to reconsider the extension of the budget “guardrails” enacted on February 9– before an extra-legal device known as the “Bond Lock” renders the ‘guardrails’ irrevocable as soon as July 1.
Enacted into law in 2017 and 2018—and extended on February 9 of this year for up to 10 more years—the “guardrails” are a complicated interlocking set of restrictive revenue and spending controls that short-circuit the normal budgeting process for the purpose of limiting spending on programs and then transferring the “excess surplus” first to fill up the Rainy Day Fund and thereafter exclusively to retire outstanding state pension debt.
These ‘guardrails’ were cemented into state law by an extra-legal device called the “Bond Lock” which promises purchasers of state bonds that the General Assembly will not change any of the ‘guardrails’ for as long as 10 years except in a limited manner by a supermajority three-fifths vote.
In this series of five opinion articles, we look under the hood to review how the original ‘guardrails’ were changed during the adoption process; why the Bond Lock should be abolished; what new oversight process the General Assembly should apply before the renewed ‘guardrails’ take effect; and how the ‘guardrails’ should be revised for the purpose of reducing Connecticut’s property tax burden while continuing to chop away at the unfunded state pension debt.
Part 1: The ‘budget guardrails’ have never been scrubbed by the legislative process
Connecticut is enjoying its most positive budget status in decades cushioned by historic high levels of federal aid. These conditions should give policymakers an unfettered opportunity during this legislative session to review the package of budget controls without the pressure of constricted revenues or imminent deficits.
Instead, we were stunned that the General Assembly on February 9 readopted the package of guardrails– perhaps the most far-reaching fiscal legislation in Connecticut history, locking in the basic parameters of future state budgets for the next 10 years– by using an “emergency certified” procedure that enabled legislators to vote on a bill with no public hearings, no Finance or Appropriations Committee review, no sufficient advance notice to rank-and-file lawmakers, no publication of advance texts for public scrutiny, and no opportunity to solicit or review any expert analysis.
We offer a grade of “B-plus” for the fiscal performance of the 2017-18 ‘guardrails’ because they successfully replenished the Rainy Day Fund and saved millions of tax dollars by significant prepayment of long-term debt. But simply reenacting them on February 9 without reexamining and updating them was a missed opportunity that may not come again during the ten-year duration of the bond covenant.
Unfortunately, the failure to re-examine this complex set of budget controls before voting on them on February 9 was a repeat of the same problem from 2017-18.
There were no public hearings held before the new Bond Lock or new Volatility Cap or new Revenue Cap were enacted in October 2017 because the regular legislative session had adjourned in June and these new controls were adopted during an abbreviated special session in October.
When the new controls finally were subject to an after-the-fact public hearing during the 2018 regular session, serious concerns were expressed by witnesses, but only modest revisions were made to the 2017 package, including reducing the Bond Lock duration from 10 years to five years.
Especially noteworthy for the current moment was the response of the Finance Committee in 2018 to concerns at the public hearing about the untested impact of the Bond Lock. The Committee approved a requirement that the Office of Policy and Management secretary, attorney general, comptroller, and treasurer study the use of bond covenants as a mechanism to control state spending and borrowing.
According to a published summary of the study provision: “The study must consider the covenants’: (1) legality; (2) potential long-term financial and economic effects; and (3) impact on state government operations, including the state’s ability to fund social service programs, public education, and workforce development programs.”
But sadly, this important study was never done. The requirement was stripped from the final bill before its passage on May 9, 2018.
Not only was an adequate review never conducted before the budget controls were adopted in 2017 and 2018, but there was never a review of any kind conducted by state fiscal experts while the controls were being implemented between 2019 and 2023, as the proposed study had required.
And under the “E-Cert” procedure, there was never even a minute of public hearing testimony, or a page of expert fiscal analysis offered prior to the re-enactment of the controls on February 9.
The failure to subject the budget controls to serious scrutiny before they were adopted in 2017-18, during their operation from 2019-23, and prior to their readoption in 2023 runs counter to the “best practice” recommendations of state fiscal experts.
At the April 23, 2015 public hearing of the Finance Committee, for example, the state and local finance expert from the PEW Charitable Trusts praised the guardrail known as the 2015 Volatility Cap but recommended that policymakers “regularly evaluate the balance history an deposit and cap policies to ensure the fund is fulfilling its intended purpose.” This kind of evaluation has never happened here.
Regular evaluations are necessary for a “best practices” job of managing revenue stream volatility. According to a recent PEW recommendation, “Whether tax fluctuations are large or small, every state can benefit from a comprehensive and regular examination of volatility.” It pointed out that Utah’s executive and legislative fiscal agencies are required to produce a volatility study every three years “to measure the changes in all major revenue streams, identify the key factors influencing fluctuations, and present clear policy recommendations to mitigate future risk.” [2022]
A ”comprehensive” and “regular” examination of the performance of the guardrails has never been required in Connecticut. [In our final article, we advocate that Connecticut adopt a review similar to the Utah process described by the PEW report.]
A new statute requires that the 2024-25 budget now under legislative review must address “efforts to ensure equity in the state.” This project also necessitates a re-examination of the budget controls. A significant portion of the billions in long-term unfunded obligations covering pensions for state employees and teachers were accumulated when prior legislatures and administrations underfunded their pension obligations and kicked the pension can down the road.
How much of the financial burden of unfunded pension liability from the past 50 years is it fair to ask today’s taxpayers to pay? The answer to “how much” may come down to a matter of degree, but that is the kind of discretionary decision that should be made only after a public hearing and review by the General Assembly as part of the regular legislative process that would give taxpayers a chance to have their say.
Finally, rushing through the budget controls could have a negative impact on how the General Assembly may be tempted to pass bills in the future. Most legislative business is done as much by informal precedents as by formal rules. We fear there may have been damage to the long-term culture and practice of democratic lawmaking at the State Capitol when such a critically important budget bill was enacted on February 9 by leapfrogging over the normal legislative process.
Yes, we agree that the guardrails produced genuine benefits, but simply reenacting them on February 9 without reexamining and updating them was a missed opportunity that may not come again during the 10-year duration of the bond covenant. That’s why in a nutshell the legislative process should be reopened.
Tomorrow: The ‘guardrails’ blocked property tax reductions for every Connecticut resident
Alex Knopp is the principal author of this analysis on behalf of the following members of the Property Tax Working Group of 1,000 Friends of Connecticut. (Knopp is a former State Representative, Mayor of Norwalk and Visiting Clinical Lecturer at Yale Law School.):
- Bill Cibes, former State Representative, Secretary of Office of Policy & Management and Chancellor of the Connecticut State University System
- Michele Jacklin, former Hartford Courant Political Columnist, Trinity College Media Director and Co-Chair, CT Council on Freedom of Information.
- Jefferson Davis, former State Representative and First Selectman of Pomfret.
- Sue Merrow, former First Selectman of East Haddam and Chair, CT Council on Environmental Quality.
- Albert Ilg, former Town Manager, City of Windsor and Interim City Manager of Hartford.
- Chip Beckett, former Glastonbury Town Council member.