Minutes after signing the new state budget on Monday, enacted with overwhelming bipartisan support, Gov. Ned Lamont appealed to the legislative leaders from both parties to keep up the cooperation.
“I love this era of good feeling,” he said. “May it last?”
But the prospects of future harmonious budgets more likely hinge not on partisan relations but rather how well Lamont works with his fellow Democrats on the “fiscal guardrails” that dominated this year’s discussions.
More specifically, the two highest-ranking lawmakers both issued clear public warnings in the just-completed session’s final days that the spending cap the governor loves is taking a toll on core programs such as education and social services.
There’s a way to manage this and still be fiscally responsible, legislative leaders say, but it requires flexibility.
But while Lamont showed some flexibility this year, he’s making no promises about the future.
A ‘prudent guardrail’ or a ‘straitjacket’?
The spending cap — which attempts to keep budget growth in line with personal income and inflation — can be “a prudent guardrail,” Senate President Pro Tem Martin M. Looney, D-New Haven, said last week as the chamber wrapped its budget debate.
“It can mean also that it is a straitjacket that prevents spending to meet real needs, even at a time when resources are available to meet those needs,” Looney said, adding that “this budget has elements of both.”
At first glance, the $51.1 billion biennial plan appears to allow plenty of growth, with appropriations growing 3.8% in the first year and 3.5% in the second.
[RELATED: Senate gives overwhelming bipartisan approval to new CT budget]
Lamont tried to convince majority Democrats in the House and Senate that this was good enough. The governor argued that most programs still were getting increases, albeit not as much as advocates wanted.
He also noted that while the 2010s were marked by two large tax hikes, he and lawmakers were delivering a major state income tax cut in the next budget.
But things are more complicated than that.
In the cap’s 32-year history, a few cost-drivers — including employee wages and benefits, required contributions to public sector pensions — grew faster than personal income and inflation. Many other programs, like social services, health care and higher education, got minimal increases or stayed flat. And during a recession, they often were cut.
Factor in the recent economic damage caused by the pandemic and by surging inflation, and too many core programs need a dramatic infusion of cash now, critics of the cap system argue.
Looney says the cap system would have collapsed a few years ago, had Congress not sent roughly $3 billion in pandemic relief directly to state government here through the American Rescue Plan Act.
Those ARPA dollars — along with hundreds of millions of dollars from surplus over the past two years — have kept vital programs afloat.
And the new budget transfers $340 million from the current fiscal year’s nearly $3 billion surplus into the next biennial. Those “carry forwards,” as lawmakers describe them, represent big investments in public colleges and universities, the nonprofit agencies that deliver the bulk of state-sponsored social services to people with disabilities, and to federally qualified health clinics.
And because those surplus dollars technically were appropriated this fiscal year, they won’t count against the spending cap in the coming biennium.
Majority Democrats in the House and Senate wanted to do a second type of spending cap workaround that has been employed in the past. They specifically hoped to use an accounting technique known as an “intercept” to capture hundreds of millions of dollars in tax receipts before they arrive in the General Fund and effectively spend them outside of the cap system.
Lamont wouldn’t accept that one, and both sides managed to cut a deal just using surplus carry forwards. But even with that, many legislators said the new budget didn’t do enough to help higher education, social services and health care — and they predicted a budget battle in 2024.
During a late morning press conference on June 7, the session’s final day, House Speaker Matt Ritter, D-Hartford, never mentioned Lamont by name but challenged spending cap purists to maintain perspective as well.
“There are many ways legally to do what you need to do, irrespective of the guard rails, without sacrificing the financial discipline and prudence that has been demonstrated over the last couple of years,” Ritter said.
Even while carrying forward hundreds of millions of dollars in surplus in each of the past two years, Connecticut has dedicated billions of surplus dollars to pay down pension debt. More than $4 billion was used for that purpose last year, and more than $2 billion is projected to land in the pension funds this summer or fall.
One of the main reasons recent surpluses have been so large is because legislators from both parties voluntarily tied their own hands. In 2017, to complement a new, more restrictive spending cap, they enacted two programs that force them to save hundreds of millions of dollars in tax receipts — and in some years, billions — when tax revenues are flush.
And if Connecticut is going to keep racking up huge surpluses, Ritter said, legislators are going to want to use a portion of them to shore up core programs.
Republican legislators generally have backed Lamont about strict adherence to the spending cap, but the GOP overwhelmingly voted for the new budget with its big income tax cut, even with the surplus carry forwards.
House Minority Leader Vincent J. Candelora, R-North Branford, said the package “certainly is a continuation of the spirit of these fiscal restraints.”
When pressed last week whether these carry forwards — which largely are being used to cover recurring program costs and not one-time expenses — are a gimmick or something he can accept year after year, Lamont left his options open.
The governor said he hoped to see some “real reforms” in spending so these carry forwards aren’t viewed as an “endless subsidy.”
“I consider the surplus money one-time money,” he said. “I don’t think you fund recurring expenses with one-time surplus money. But we’ll see where we are a year from now.”
Lawmakers unanimously renewed the spending cap and savings programs in February for five more years. But Ritter warned things could change if all leaders don’t remain flexible.
“If you become too much of a straitjacket … then I worry about [fiscal guardrails] in the long term,” Ritter added. “So my response for the people who are so pure about that: Be careful, because they will go away in five years if you do that.”