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April 2, 2024

CT budget panel mulling whether to challenge Lamont’s guardrails

MARK PAZNIOKAS / CT MIRROR Rep. Toni Walker and Sen. Cathy Osten, the Appropriations co-chairs.

After being challenged by Gov. Ned Lamont to adhere to Connecticut’s fiscal guardrails, the governor’s fellow Democrats in the legislature’s majority will get their first chance to counter formally this week.

But even though the Appropriations Committee must propose its own budget for the next fiscal year no later than Friday, it remained unclear Monday whether it would recommend the spending cuts Lamont wants — or seek to work around the cap as suggested by top leaders in the House and Senate.

Sen. Cathy Osten, D-Sprague, and Rep. Toni E. Walker, D-New Haven, both told The Connecticut Mirror that a decision might not be reached until just before the Appropriations Committee meets. An exact date hadn’t been set by early Monday.

“We’re not ready yet to talk about it,” Osten said. “We have to let our colleagues in Appropriations know” first.

“We’re pigeon-holed between that [guardrails system] and what we know is needed in the state of Connecticut,” Walker said.

One guardrail, a spending cap that keeps the growth in spending in line with personal income and inflation, says the preliminary $26 billion budget adopted last June for the 2024-25 fiscal year already needs $30 million in cuts.

That’s a hard sell for Democratic legislative leaders to make, given that many lawmakers want to expand investments in higher education, child care, other social services and Medicaid.

And it’s an even harder sell because two other guardrails require legislators to leave another $750 million in available funds untouched. One provision specifically requires a built-in budget operating surplus of nearly $300 million. A second would deem $450 million in quarterly income and business tax receipts too volatile to spend and would hold them outside of the budget. And the $750 million would be used to expand the state’s record-setting $3.3 billion rainy day fund and to pay down pension debt.

Because Connecticut has made $7.7 billion in supplemental payments against pension debt since 2020, its required annual pension contributions are about $650 million less than they otherwise would be, the administration frequently notes.

“Paying down our debts and a robust rainy day fund doesn’t short change our [other] programs,” Lamont said in his Feb. 7 budget address. “It has resulted in six years of consistent increases in our key social programs, rather than the herky-jerky boom and bust cycles of yesteryear.”

But while this year’s required pension contributions are about $650 million less than they otherwise would be, thanks to the supplemental payments, they still will be $40 million greater in the next budget than in this one. In other words, those extra payments have stymied the growth in required contributions but haven’t reduced them compared with current levels.

That’s a huge distinction for legislators who say Connecticut has other needs to meet besides attacking its huge pension debt.

House Speaker Matt Ritter, D-Hartford, and Senate President Pro Tem Martin M. Looney, D-New Haven, both say the bulk of their caucuses want to spend at least $300 million to $400 million more next fiscal year on higher education and other core programs.

This still would allow, they note, for Connecticut to save hundreds of millions of extra dollars to expand reserves and pay down pension debt, albeit less than $750 million.

To spend that money, though, legislators would need to convince Lamont to work around the spending cap, even more aggressively than they have in recent fiscal years.

This could be done through accounting maneuvers that shift budget surplus from one year to the next, or that intercept certain revenues and move them outside of the budget and spending cap system.

Critics of this approach, including Lamont and Republican legislative leaders, say this violates the spirit of the cap and puts state finances at risk over the long haul.

Chris Collibee, the governor’s budget spokesman, said last week that “Any [legislative budget] proposal must adhere to all statutory and constitutional caps approved unanimously last year.” 

Appropriations co-chair: Next budget is ‘an impossible task’

Walker — who called the next state budget “an impossible task” — and Osten basically face two options this week.

One is to recommend the added spending their colleagues want and open their panel up to criticism from Lamont and the GOP, who could argue there is no way to pay for it without circumventing a guardrails system that has helped keep state finances balanced since 2018 and enabled significant tax cuts in each of the past two years.

The other is to deny the extra spending that top Democratic leaders have endorsed and order cuts in some popular programs.

Lamont argues nothing is really being cut. It’s simply not growing as fast as some legislators want. But that isn’t the case.

Overall General Fund spending tops $22.3 billion this year and is bolstered by another $746 million in federal pandemic grants and surplus carried forward from the previous year. That’s about $23.1 billion.

Legislators approved $22.8 billion for the General Fund in the preliminary 2024-25 budget and supplemented it with $214 million from pandemic grants and surplus for a total of $23 billion. Lamont is searching for additional pandemic relief expected to bring overall spending next year close to current levels.

But specific programs would lose out.

Public colleges and universities would see their base block grants grow, but overall funding would shrink as pandemic grants are exhausted.

Higher education officials already have increases tuition and fees and have begun to explore cuts, including reducing faculty levels.

Nonprofit agencies that deliver most state-sponsored social services have been insisting for years they cannot meet demand anymore because of limited state funding that doesn’t keep pace with inflation. The industry estimates it loses $480 million annually because of this problem.

Appropriations Committee challenged a former governor’s ‘cruel cuts’

Many members of the Appropriations Committee, including its co-chairs, have argued for more funding in these areas. Still, it wouldn’t be unprecedented if the committee were to issue a plan lacking the $300 million to $400 million top legislative leaders insist is needed.

In 2009, a Democratic-controlled legislature sparred for eight months with Republican Gov. M. Jodi Rell after she delivered a biennial budget plan that nonpartisan analysts found to be more than $2 billion out of balance because of outdated and overly optimistic revenue assumptions.

[The Rell administration would acknowledge most of the gap in its plan later that year, and the state would create a new top marginal rate for the wealthy within its income tax system.]

To show the challenges within the Republican governor’s proposal, the Appropriations Committee developed a plan cutting a host of programs. At the same time, legislators would hold press conferences across the state highlighting what they argued were “cruel cuts” sought by Rell.

Walker, like Osten, declined to say what strategy her committee would employ when it recommends a spending plan this week for the fiscal year that starts July 1. But she said her group has spent the last few months hearing many warnings about the problems that higher education, social services, child care and Medicaid programs will face without more funding.

“Nobody realizes that we hear all the pain the people are going through in the state,” she said, adding that “People who feel their whole role is to deny people access to services” often aren’t fully aware of the problems many face.

GOP will side with Lamont to protect guardrails

But Republican leaders on the current Democratic-controlled Appropriations Committee say there’s no need for any deep slash-and-burn budget this year.

What is necessary, they say, are reasonable spending choices and a greater demand for efficiency, particularly among higher education units with large, well-paid administrations.

Rep. Tammy Nuccio of Tolland, ranking House Republican on the budget panel, said the $2.8 billion Connecticut received from Congress through the American Rescue Plan Act is nearly exhausted, and the state simply has to accept that pandemic aid is vanishing.

“Connecticut’s been flush with cash the last few years because of COVID,” she said. “That’s not going to continue.”

Sen. Eric Berthel of Watertown, ranking Senate Republican on appropriations, said, “The attempts right now by Sen. Looney and Rep. Ritter to find ways to work around that [cap,] it’s not the appropriate thing to do.”

Berthel said the state’s ability to check runaway growth in required pension contributions alone should encourage everyone to keep to the current system.

Democrats have chastised the GOP in recent years, though, noting that since the guardrails first were established in 2017, Republicans largely have declined to develop a minority budget and show how they would balance finances.

The House and Senate Republicans did each produce separate plans last year, though, and Nuccio and Berthel both said that is a good practice that should continue.

Those GOP plans did rely on keeping many state agency jobs empty, something labor leaders and others say cannot happen as the public sector already faces a staffing crisis.

Still, Nuccio said that if Democrats craft a budget that relies upon accounting gimmicks to circumvent that cap, “It will be an easy no-vote for us,” adding that “we’re very concerned about the shenanigans.”

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