Connecticut’s fiscal past has come back to haunt state officials again — only this time it’s not about failing to save for workers’ pensions.
While Gov. Ned Lamont insists funding for state colleges and universities must be cut next year because of the spending cap, his analysts will issue a new report Monday showing Connecticut continues to minimize debt costs and produce healthy budget surpluses.
That’s hardly making his case.
Lamont could project where higher education expenses are headed a year or two from now, based on current law and trends, and how that might clash with the cap. But legally, the administration isn’t allowed.
“I don’t have a revenue problem, I have a spending cap problem,” Lamont’s budget director, Office of Policy and Management Secretary Jeffrey Beckham told the Connecticut Mirror last week. “The spending cap, for me, is the main event.”
So why can’t Beckham clearly spell that out in Monday’s report?
The problem is a 2016 statute that closely regulates what goes into the two Fiscal Accountability reports, omnibus assessments of state budget trends prepared separately each year by the governor’s budget staff and by the legislature’s nonpartisan Office of Fiscal Analysis.
First ordered in 2005 to help officials prepare for the upcoming legislative session, these reports originally projected spending growth in all core programs — education, municipal aid, social services, health care and transportation, as well as in debt costs and retiree benefits.
But things began to change in the 2010s — when state government wasn’t enjoying record-setting surpluses like it achieved from 2020 onward.
The prior decade was marked by a sluggish recovery from the Great Recession, and state finances were plagued with red ink.
Gov. Dannel P. Malloy — who served from 2011 through 2018 — watched these fiscal accountability reports turn into one deficit headline after another.
By 2013, his budget staff began focusing the spending section of their report only on certain “fixed costs” that represented about 40% of the overall budget. These included debt service, contributions to pensions and retiree health care, Medicaid, and federal mandates.
The administration argued this approach would help legislators more easily prioritize their spending. Estimated revenues would have to cover “fixed costs.” What was left was all that could be spent on education, social services and other core programs.
Meanwhile, the legislature’s nonpartisan analysts continued to project spending growth in all areas — in compliance with the law — and reports of deficits continued.
In 2016, Malloy convinced legislators to change the law, forcing all analysts to project spending only in these “fixed cost” areas.
The problem for Lamont, though, is that fiscal times are very different.
The current governor hasn’t dealt with a projected deficit since the one he inherited when he took office in January 2019.
Thanks to a new savings program ordered by the 2017 legislature and a largely robust stock market, Lamont has been able to run up close to $11 billion in surpluses. About $7.7 billion of those funds were used to pay down pension debt while the rest elevated the rainy day fund from about $210 million to more than $3.3 billion.
But despite these healthy revenues, Connecticut has a spending cap and other fiscal guardrails designed to keep spending in line with the growth in household income — and to force government to keep whittling down its debt.
Connecticut entered 2023 with about $88 billion in unfunded pension and retiree health care obligations and bonded debt, making it one of the most indebted states, per capita, in the nation.
Meanwhile, Lamont has come under fire this fall from college students, labor unions and some legislators. Higher education, which enjoyed major increases from 2020 through this year, needs to start pulling back, the governor argues, if Connecticut is to stick to its fiscal guardrails.
The administration notes that the budget lawmakers adopted last June boosted spending across all agencies and programs by 3.8% this fiscal year and will add another 3.5% in 2024-25.
Earlier this month, analysts for The Pew Charitable Trusts praised Connecticut for having annual fiscal accountability reports.
But Pew analysts, said that “despite providing a wealth of data and analysis, the reports suffer from a significant weakness. They are statutorily required to project spending growth only in ‘fixed cost drivers.’”
“By requiring this approach, Connecticut policymakers may have forced the analysts to provide them with an unrealistically optimistic view of the budget because potential spending growth in other areas, such as education and local government aid, is not included,” Pew staff added.
And some legislators from both parties said Thursday that it might make sense to restore the original format to the Fiscal Accountability Report, so legislators can see that spending in all areas continues to grow — albeit not by as much as some would like.
“You really have to have a full picture,” said Sen. Cathy Osten, D-Sprague, co-chairwoman of the budget-writing Appropriations Committee. “When you’re only talking about ‘fixed costs,’ you have a plethora of areas” that lawmakers don’t see.
House Minority Leader Vincent J. Candelora, R-North Branford, said the 2016 decision not to report on spending trends in all programs may have relieved pressure on Malloy, but it meant losing sight of areas that potentially were growing too quickly.
“In the long run, we’re not better off for it,” he said. “There’s a lot of people that have forgotten the sins of the past.”