The so-called “bond lock” is the most superfluous, undemocratic and possibly unconstitutional element of the budget guardrails.
The bond lock is a state law that requires the Treasurer to promise purchasers of state bonds that the General Assembly will not exercise its customary law-making process to alter any of the budget guardrails for the life of the bonds except by invoking an unusual super-majority three-fifths vote after an emergency declaration by the governor to suspend them for one budget year.
Other parts of this series
It is an axiom of parliamentary procedure that one legislature cannot bind a future legislature because each democratically elected legislative body is entitled to equal powers. Thus, a legislature elected in 2022 can pass a law declaring that “for the next 10 years pizza will be the official food of Connecticut.” But the new legislature elected in 2024 can simply pass a superseding law: “Notwithstanding any other provision of law, lobster rolls are the official food for the next 10 years.”
The bond lock attempts to prevent this outcome by promising purchasers of state bonds that no future legislature for the next five or 10 years will change the wording of the guardrails except by a super-majority three-fifths vote. Or to use the food example, the current legislature has enacted the bond lock to preempt legislators who will be elected in 2024, 2026, 2028, 2030 and 2032 from being able to exercise their constitutional law-making powers. They would not be able to under the traditional majority-rule legislative process to decide to replace pizza with a lobster roll.
As far as we can determine, no other state has enacted a bond lock because no other state legislators have voluntarily delegated to Wall Street bond purchasers their constitutional law-making powers to adopt and adjust their state budgets.
Despite our awarding of a grade of “B-plus” to the Rainy Day Fund replenishment and debt prepayment savings, the principal reason for our disappointment with the February 9 suspension of the regular legislative process to approve the ‘guardrails’ was that the new bond lock will prevent any effective review, analysis, or alteration of the budget controls for as long as 10 years.
Returning to recent legislative history, there never was a public hearing on the “bond lock” concept held prior to it being inserted into the budget drafted by legislators after the regular 2017 budget deadline had passed.
When the Finance Committee finally held a public hearing in 2018, public finance experts who supported adoption of some form of a volatility cap expressed surprise and skepticism over the inclusion of a bond lock. Ellen Shemitz, Executive Director of Connecticut Voices for Children, summarized communications from Moody’s Investor Service expressing concern that the bond lock “reduces budget flexibility” and from the Standard and Poor’s Rating Service that “a state might find itself locked into rigid financial practices should circumstances change.”
Shemitz’s testimony included a recommendation from Urban Institute economist Kim Reuben that Connecticut at least delay the bond lock, “arguing that it is ‘not so much tying one’s hands as tying one’s hands and jumping off a cliff without knowing whether deep water or rocks lie below.’ ”
There is no doubt that Wall Street credit rating agencies have favored intercepting “surplus surplus” funds to retire unfunded pension debt, but they have not similarly lauded the bond lock.
The bond lock should not have been renewed in February, especially in the absence of any review. In our view, there is more than enough justification to vote this session to dismantle the bond lock even by legislators who support the other ‘guardrails.’
First, there is no evidence that the bond lock has had a positive impact on the state budget’s fiscal performance over the past five years. The same production of “surplus surplus,” the same huge transfer of funds into the Rainy Day Fund, and the same reduction in unfunded pension debt would have occurred even if the Bond Lock had never existed.
Second, the bond lock should be removed as a key obstacle to legislative adoption of financial measures that redirect more of the “surplus surplus” to property tax relief by fully funding state grants to municipalities.
The surplus money to fully fund these grants may not have existed in 2017-18. But as we have shown in the second article in this series, after new surpluses were generated during 2021-23 by the interaction of the national economic recovery and the state’s revenue structure, the legislature could have pivoted to put more of the “surplus surplus” into the wallets of taxpayers if they had not been handcuffed by the Bond Lock.
Third, the bond lock places the legislature in a straitjacket by making it impossible to respond to new economic conditions. A major unforeseen contingency came to pass after the Bond Lock was adopted in 2017-18 when the COVID pandemic struck in late 2019 and early 2020. Fortunately, Connecticut and other states were rescued by an unprecedented avalanche of federal spending. Connecticut’s “lock” of budget inflexibility was mitigated largely by federal funds. But will the end of federal budget support necessitate an adjustment in the ‘guardrails’? That will be practically impossible when the first bond is sold after July 1.
By freezing the budget status quo, the bond lock may also prevent the state from launching important new initiatives. Gov. Ned Lamont in March announced the appointment of a blue ribbon panel to produce by the end of the summer “a data-driven, actionable, strategic plan that supports optimal child development, family needs, business needs, and prioritizes equitable access to early care and education.” Gov. Lamont should be applauded for addressing the childcare crisis. But as the volatility cap, the spending cap, the revenue cap and the budget reserve fund as enforced by the bond lock automatically divert “excess surplus” revenue to pension debt prepayment, will there be enough funds available for a significant new statewide childcare initiative?
Fourth and most importantly, the bond lock is an affront to democratic values and a highly questionable evasion of the constitutional order of state government. The Connecticut Constitution places all budgeting powers in the elected legislative and executive branches. The state should offer purchasers of bonds its customary covenant promising to pay principal and interest on its bonds. But there is no conceivable reading of the Constitution that authorizes lawmakers to offer bondholders a special covenant granting them the right to bring an injunction or other judicial action under the authority of the bond lock to prevent our elected legislature from exercising its constitutional budget powers.
While we view laws requiring supermajority votes to approve legislative action to be inconsistent with democratic rule by majority, nonetheless there is a right way and wrong way to enact them. For example, Connecticut voters amended the state constitution in 1992 by adopting a spending cap that requires a super-majority vote of three-fifths of legislators to suspend it.
The bond lock is an attempt to negate majority rule not by the “right way” adoption of a constitutional amendment that was approved by voters, but rather by the “wrong way” questionable legal device of a “covenant” or special promise given to bond purchasers that the General Assembly will not “unlock” the guardrails except by a legislative super-majority.
The bond lock was an improper end run around the constitutional amendment process. Even worse, it is a heavy-handed attempt to disenfranchise Connecticut voters by denying duly elected legislators the legal authority to exercise their constitutional budget-making duties. It should not be perpetuated.
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.