Senate GOP’s no-tolls alternative relies on rainy day fund
Photo | CT Mirror/MARK PAZNIOKAS
Senate GOP leader Len Fasano outlines the Republican alternative to tolls.
The Senate Republican minority on Thursday proposed using budget reserves in a complex and creative way to finance an overhaul of Connecticut’s creaky transportation system without tolls or new taxes, inviting Gov. Ned Lamont and Democratic lawmakers to weigh those political advantages against sacrifices and risks inherent in the plan.
The GOP would use nearly two-thirds of the state’s budget reserves to pay down pension liabilities, producing an annual savings of $130 million that could be spent on transportation. Another $100 million would come from cutting annual borrowing for things such as capital spending on local schools and public universities.
The economic and political risks would be significant. Connecticut would lose borrowing capacity to meet other needs, and it would leave itself vulnerable in a recession. Politically, it would require Lamont to compromise one of his first principles: The importance of resisting temptation to spend the reserves.
“There’s a tendency to want to spend [the reserves] and defer the tough choices we know we have to make,” Lamont told CT Mirror in a post-election interview a year ago. “But you know how volatile our income taxes can be. If the bottom falls out … we ought to be ready.”
Senate Minority Leader Len Fasano, R-North Haven, has been working on the alternative for weeks, but the time of its completion is propitious, coming a day after Senate Democrats took tolls off the table as a financing mechanism.
“We recognize the the hard work that Gov. Lamont has put into his CT2030 plan, but we do not support tolls, which is why we worked to offer this no-tolls alternative,” Fasano said in unveiling the GOP alternative, FASTR CT. “We developed FASTR CT to show there is another way to invest in transportation and grow jobs in a manner that is sustainable and accountable to taxpayers — all without tolls.”
Lamont greatly scaled back the tolls in his original plan proposed in February, instead seeking 14 highway tolls that would provide $320 million in annual revenue — a dedicated revenue stream needed to leverage low-cost financing for $21 billion in transit and highway improvements over 10 years.
The GOP’s alternative echoes several of the non-tolls elements of Lamont’s latest transportation initiative, including reliance on low-interest federal financing and an aggressive transfer of sales tax receipts from the budget’s General Fund into the transportation program.
With a cash flow of $230 million, however, the GOP plan would produce only 70% of the revenue projected from Lamont’s tolls plan, necessitating a downsizing of some of the projects in his plan, CT2030.
But the GOP says it still could finance $18 billion in transportation spending over the next decade, giving Lamont a significant portion of transportation improvements he says are vital to spark economic growth and keep the state in the running for obtaining cheap federal financing.
Converting pension woes into a transportation plus
Just how would Senate Republicans use Connecticut’s cash-starved state employee pension fund — which suffers from seven decades of poor savings habits — into an asset for transportation?
It’s complicated, but step one is to crack open the $2.5 billion budget reserves set aside by the administrations of Lamont and former Gov. Dannel P. Malloy over the past two years.
Connecticut has yet to recover all jobs lost in the Great Recession of 2008. Most of the reserve is due to surging income tax receipts tied to capital gains, rather than from broad economic growth.
Still, $2.5 billion in the rainy day fund — equal to 13% of annual operating costs — easily shatters the last record reserve of $1.4 billion, or 8%, held back in 2008.
The Senate GOP would take $1.5 billion of that reserve and deposit it into the pension fund.
Why not just assign it straight to the budget’s Special Transportation Fund? Because that would push spending this year, and likely in subsequent years, over the statutory spending cap, which Republicans say they won’t break.
But pension contributions are cap exempt. And as pension fund assets rise, required contributions going forward shrink.
A $1.5 billion infusion won’t come close to solving all of the state’s pension woes. But nonpartisan analysts project it would justify reducing annual contributions by $130 million.
These funds then would be redirected to transportation. And like Lamont planned for some of his toll receipts, Republicans also would use this pension savings and some other resources in the Special Transportation Fund to pay cash for many infrastructure projects — sparing Connecticut hundreds of millions of dollars in interest costs over the coming decade.
Add a little bit of ‘Prioritize Progress’
But that still wouldn’t be enough to do the entire job.
Connecticut’s current capital program barely maintains the state of good repair of its highways, bridges and rail lines, allowing little funding for strategic enhancements to reduce congestion.
The next step in the Senate Republican plan finds more resources to tackle this priority by reviving and modifying an earlier proposal it called “Prioritize Progress.”
Rather than charge motorist fees, Republicans suggested Connecticut redirect hundreds of millions of dollars in borrowing from school construction, higher education, state building renovations, community-based projects and other initiatives into transportation. Democrats said the plan would cause as many problems as it solved.
But for FASTR CT to work, Republicans now say they need just $100 million per year from this area. Hoping to win Lamont’s approval, the GOP notes this approach still would accommodate the governor’s proposal for a “debt diet.”
Lamont wants to curb borrowing in non-transportation areas by as much as $500 million per year, though he’s struggled to win support for this idea from his fellow Democrats in the House and Senate majorities.
Senate Republicans say that while they would need to redirect $100 million of this bonding for transportation, Lamont still could make major reductions in non-transportation bonding and not impact their program.
The Senate GOP proposal also would restore a 2018 bipartisan plan to increase the share of sales tax receipts dedicated to the Special Transportation Fund. Lamont and the legislature’s Democratic majority had scaled back the transfer considerably in the most recent two-year state budget, adopted back in June.
Like Lamont, the Senate Republican plan also counts on securing low-interest financing through two federal programs that allow the loans to be repaid over a period as long as 27 years.
And while the $18 billion the GOP plan would invest in transportation upgrades by 2030 — $19 billion, Republicans say, if the most favorable federal rates could be obtained — doesn’t match the $21 billion Lamont proposed, it comes close.
Selling the plan to Lamont … and to Wall Street
But to make it all work, Republicans have one more step to take.
The GOP also has to convince Lamont and Democratic lawmakers to gamble on using the reserves with the hope they could be restored before the next downturn hits.
At the same time, officials also would need to convince Wall Street credit rating agencies — whose reports determine whether Connecticut can borrow funds cheaply — that this makes good fiscal sense. The Lamont administration already is trying to gauge how Wall Street would weigh accelerating t
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CT is number 2 in taxes, we tax more than 48 other states = we spend more than 48 other states! Not one mention on spending cuts.
A few areas for comparison are available, CT roads cost 3 Times national average, DOT administrative costs are 700% higher than national average, a CT prison had a guard to prisoner ratio at almost 2 guards per prisoner. Outrageous! Unjustified! Unjustifiable!
But not one mention of spending cuts to redirect the TAX DOLLARS to where they are needed. Worse, Ned’s diverted $170 million from the STF, as has been done annually- now $1 Billion Diverted from STF, our roads & bridges.
How about a 1% cut per year for the next 5 years!
Forces the hard decisions to be made made.
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