CT lawmakers seeking new options to work around budget cap

Despite the bipartisan praise lavished on Connecticut’s budget constraints, officials never have fully embraced them, spending hundreds of millions of dollars in recent years outside the “fiscal guardrails” — drawing from short-term sources.

But these temporary wells are running dry faster than many anticipated, setting the stage for a budget showdown this May, with funds for education, human services and health care hanging in the balance.

On one side, Gov. Ned Lamont, other moderate Democrats and most of the legislature’s Republican minority are pushing for stricter adherence to these fiscal controls.

On the other are most of Lamont’s fellow Democrats, who want to spend up to $400 million beyond official limits. But they note that besides shoring up core programs, this still would leave finances projected in the black — and poised to further reduce pension debt.

Options for working around the spending cap are shrinking

“I am not going to ask my caucus to vote for a budget that does not have $300 million to $400 million of extra spending,” House Speaker Matt Ritter, D-Hartford, told The Connecticut Mirror on Thursday.

But that’s not an easy task, given that the preliminary $26 billion budget for 2024-25 — the one that legislators want to enhance — already exceeds the state spending cap by $30 million. In other words, there’s no room to add even $1. And that plan only boosts General Fund spending by 2% above current levels.

Further complicating matters, Ritter’s comment came one day after Lamont’s administration reduced projections for this fiscal year’s operating surplus to just $109 million or one-half of 1% of the General Fund. Eroding sales tax receipts and cost overruns in human service agencies have steadily whittled down the $400 million cushion lawmakers built into the budget when they adopted it last June.

Why does this year’s surplus matter for next year’s budget?

Legislators were counting on that $400 million since carrying operating surplus from one fiscal year into the next is one of the chief tools used to circumvent the spending cap. Because those carry-forward dollars technically were appropriated in a prior year, they don’t count against future cap calculations when they are spent.

The legislature carried about $280 million from last fiscal year’s operating surplus into the current budget. That plan also was backed by $544.3 million of the nearly $2.8 billion in flexible pandemic relief Connecticut’s state government received from Congress in 2021 through the American Rescue Plan Act.

But those ARPA funds, which aren’t subject to the spending cap and are the second tool legislators use to maneuver around the guardrails, have nearly been exhausted.

Lamont’s budget office estimated in early February that only $55.7 million in previously allocated ARPA could be re-directed into the next budget, although that number might be slightly larger. The administration is preparing an updated tally and has asked all agencies to report on unspent funds by March 25.

Still, a $109 million surplus and about $56 million in guaranteed ARPA represents about $165 million that could be added to the next state budget without violating cap rules, far below the $300 million to $400 million legislative leaders insist is needed to address a plethora of issues.

Legislative leaders say available funds under cap aren’t enough

Public colleges and universities, which have been big beneficiaries of funds from these temporary sources in recent years, are projecting significant deficits after July 1, despite tuition and fee increases already ordered at community colleges, regional state universities and at the University of Connecticut.

The private, nonprofit agencies that deliver the bulk of state-sponsored social services estimate they lose $480 million annually because government payments haven’t matched inflation since 2007.

Legislators also want to boost funding for a child care industry that hasn’t fully recovered financially from the worst of the coronavirus pandemic as well as for various health care programs that are facing increasing demand.

And despite the shrinking operating surplus, that doesn’t mean the state finances are heading for a deficit. They may not have gotten worse at all.

Though the operating surplus has dropped from $400 million to $109 million, that’s not the only fiscal safety net Connecticut has.

A second program, which forces the state to save a portion of volatile income and business tax receipts, is expected to collect $480 million this fiscal year. Some legislators expect that number to grow in late April when analysts adjust projections based on income tax filings.

Most of that savings program involves capital gains and other investment-related earnings, and the markets have risen considerably since the fiscal year began.

The Dow Jones Industrial Average closed Thursday at 39,781 points, up 15.7% since last July, while the S&P [Standard & Poor’s] 500 is up 17.8% over the same period, according to marketwatch.com.

“If you look at the overall picture, it’s nowhere near as dire as if you look at isolated pieces,” said Senate President Pro Tem Martin M. Looney, D-New Haven.

But there’s still a problem: While the operating surplus can be carried forward to help next year’s budget, the volatility savings program cannot, except under special conditions.

Even if its potential growth in April outstrips the reduction in the operating surplus, the volatility savings program can’t help education, health care or social services. Under the guardrails system, the funds must be used to reduce pension debt or to increase the rainy day fund.

Connecticut already has a record-setting $3.3 billion budget reserve and has paid down an extra $7.7 billion in pension debt since 2020. Over the past four years, 21% of all revenues — excluding those assigned to special budget funds — have gone into the pensions.

Many of Lamont’s fellow Democrats say this system over-prioritizes debt reduction, and that they don’t want to stop saving — but just seek a more balanced approach.

Lamont and GOP say CT can’t lose sight of long-term challenges

Lamont and Republican legislators counter, though, that Connecticut is not out of the fiscal woods from a long-term perspective.

The state failed to save properly for pensions for more than seven decades prior to 2011, forfeiting billions of dollars in potential investment earnings — a gap current and future taxpayers must plug. The state’s unfunded pension obligations remain huge, topping $37 billion entering this year, according to the administration.

What happens if the global economy slides into recession next year, or if Washington begins to pull more funding for states back to pre-pandemic levels, as it did this past year with winter heating assistance, Republican state legislative leaders have asked.

If Connecticut Democrats increase spending as pandemic grants are exhausted, it will be even harder to sustain those investments if future challenges arise, said House Minority Leader Vincent J. Candelora, R-North Branford.

“The fundamental question that Democrats always seem to ignore around spending is sustainability, and that’s why the caps are there,” Candelora said. “If you can’t keep up with those spending levels year to year, you’re putting yourself in a long-term deficit. … This is the behavior we saw 20 years ago and we’re seeing today.”

“One thing that we can’t do is play fiscal gimmicks with these guardrails,” added Senate Minority Leader Stephen Harding. “We’ll be in far worse shape in the long run.”

The Lamont administration also hasn’t shown interest in carving out new ways to work around the cap.

“Any additional state funds that the General Assembly provides in any FY 25 budget adjustment will need to be consistent with a balanced budget that complies with all statutory and constitutional caps,” Chris Collibee, Lamont’s budget spokesman.

Democrats insist that whatever they do will absolutely be legal. The question, for some, is whether it will comply with the intent of the guardrails system.

The preliminary budget for 2024-25 has a built-in operating surplus of $300 million and expects to save another $450 million through the volatility program. Democrats say they don’t want to tap anywhere close to all of that $750 million projected cushion.

They’re exploring an “intercept” of revenue, an accounting maneuver that technically assigns a portion of some revenue source — tax receipts, interest earnings, fees — outside of the budget, as well as an expense that these intercepted revenues would cover. When the spending occurs outside the budget, it no longer counts against the spending cap.

Legislators and governors have used this technique before. A revenue intercept of roughly $150 million to $200 million, coupled with remaining ARPA funds and this year’s $109 million operating surplus, might be enough to resolve the next state budget before the regular legislative session ends on May 8.

To those who say this is a gimmick, Ritter’s response is: Check your history.

Democratic and Republican legislators both gave ground at the end of a nine-month-long budget debate seven years ago to establish unprecedented budget constraints.

“What has made Connecticut move since 2017 has been the compromises, the give and takes,” he said.

Some Democratic legislators insist closer to $1 billion needs to be added to the next budget, Ritter said, adding that caucus leaders, trying to compromise, already have shaved that down to $300 million to $400 million. But that’s as far as they will go.

“If people don’t like what we have, and don’t have better ideas,” the speaker said, “we will pass it [anyway] and see what they do with it.”

Original article found at CT Mirror.

Lamont’s plan keeps CT budget within guardrails, pays down $500M in debt

Gov. Ned Lamont stayed well within Connecticut’s fiscal guardrails Wednesday, recommending a $26.1 billion budget that erases $500 million in bonded debt and invests in child care and education while largely holding the line in most other places.

The spending plan for the fiscal year starting July 1 increases base aid for public colleges and universities but reduces overall support despite warnings that it would leave higher education institutions in deficit and forced to trim staff and programs.

The package bolsters K-12 education, though not as quickly as legislators want, scaling back planned increases for magnet, charter and vocational schools. It also bolsters a planned increase in Education Cost Sharing grants from $68.5 million to $74.2 million and keeps universal school meals afloat for another academic year.

Lamont would create several new posts to monitor health care quality and finances but declined to recommend increases for the hundreds of private nonprofit agencies that deliver the bulk of state-sponsored social services. The administration also wants to tighten Medicaid eligibility on the HUSKY program and require some poor adults to acquire 100% subsidized coverage through the state’s health insurance exchange.

And while the plan doesn’t include any major tax cuts — following two years of hefty reductions — the administration is pitching a new plan to try to secure hundreds of millions of disputed tax dollars from Connecticut residents who work remotely for businesses in New York.

The governor’s proposal would boost spending 3.1% over the current spending level and add just $89 million to the preliminary, $26 billion budget he and lawmakers adopted last June for the 2024-25 fiscal year. And much of that spending added onto the preliminary budget involves a nearly $80 million increase in the required state contributions to public-sector pension funds.

But while Lamont repeatedly urged lawmakers recently to embrace Connecticut’s spending cap and other programs that have secured big surpluses, his own plan relies on a commonly used end-run around the guardrails.

Lawmakers often carry surplus funds from one fiscal year to the next because these “carryforwards” then can be spent without counting against future cap limits. Lawmakers already planned to carry $95 million from this fiscal year’s $645 million surplus into 2024-25. The governor would boost that to $140 million.

“For the first time in a generation, the state of Connecticut is not lurching from one financial crisis to the next,” the administration wrote in its budget introduction. “The state’s financial position is stable, and, unlike other states, we are not facing deficits that would result in deep cuts in spending or substantial increases in taxes.”

“Today we have more people working, more people starting businesses, more people joining labor unions with better pay and better benefits, more of our graduates staying in Connecticut, and more out-of-staters wanting to move here,” Lamont said in his budget address to the legislature.

The governor drew mixed reviews Wednesday from legislative leaders.

House Majority Leader Jason Rojas, D-East Hartford, said Lamont offered many good ideas but added he was disappointed not to see more funding for higher education. “We’re trying to fund a system that was built for Connecticut 50 years ago,” he said. “We really need to do a little bit of recalibrating.”

Senate Minority Leader Kevin Kelly, R-Stratford, predicted much of Connecticut’s middle class would appreciate Lamont’s adherence to the spending cap and other budget controls.

“Those guardrails have really brought fiscal stability to the budget,” Kelly said. “That signals to people who create jobs that Connecticut’s a place to do business because you have a stable financial picture.”

House Minority Leader Vincent J. Candelora, R-North Branford, said “overall I’ve found the budget to be reasonable,” but added House Republicans still believe government can afford to provide additional state tax relief – and that many families still need it.

Candelora’s caucus called last week for a new state income tax deduction for households with children, and for a modest reduction in the payroll tax that supports the paid Family and Medical Leave program.

Transportation program debt

The fiscal guardrails have helped state government since 2017 to amass a $3.3 billion rainy day fund and pay down an extra $7.7 billion in pension debt.

But Lamont also has been accused of accumulating too many surplus dollars when it comes to the budget’s $2.1 billion Special Transportation Fund.

This subset of the state budget fund is on pace to close $241 million or 11% in surplus when the fiscal year ends June 30, according to Lamont’s budget office.

And it finished the 2022-23 fiscal year with a 15% surplus, equal to $277 million, according to final numbers from the state comptroller’s office. And that was despite a 13-month gasoline tax holiday that returned about $330 million to motorists. Most of that cost, $240 million, occurred during the 2022-23 fiscal year.

The administration estimates the STF’s reserves — the fund that holds all its annual surpluses — will total $911 million after this fiscal year, a tally that exceeds more than 42% of the entire STF.

The transportation fund is supported by two fuel taxes, a portion of the sales tax and a recently added highway mileage levy on commercial trucks.

Republicans have accused the Democratic governor of hoarding too much revenue and urged him to repeal the highway mileage tax.

Construction industries and trades have urged Lamont and the state Department of Transportation to launch more capital projects. The STF funds DOT operations and pays the debt service on the annual state borrowing that, coupled with federal grants, finances repairs to Connecticut’s highways, bridges and rail lines.

Lamont’s budget does assume annual borrowing for capital work will grow from $875 million this fiscal year to $1 billion in 2024-25.

But he also would take $500 million from the STF reserve and use it to reduce Connecticut’s more than $7.4 billion in outstanding transportation bonding debt.

With more than $80 billion in unfunded pension and retiree health care benefits and bonded debt combined, Connecticut is one of the most indebted states, on a per capita basis, in the nation.

The administration estimates that wiping out this much bonded debt at once will reduce debt service costs by $26 million next fiscal year and by roughly $60 million in 2025-26.

“This proposal builds on Connecticut’s recent budgetary successes by leveraging our current financial position to pay down transportation debt now and generate years of savings,” said state Treasurer Erick Russell, who crafted the debt reduction plan in cooperation with the Lamont administration. “This plan will strengthen the [transportation] fund and leave the state well-positioned to take on transportation projects essential to our economic growth and the quality of life of our residents.”

Lamont’s budget also assumes Connecticut will borrow $1 billion for transportation capital projects next fiscal year, a major jump from the $875 million in financing estimated this year.

But the administration has dangled higher investments before and not delivered.

This fiscal year, for example, it also projected $1 billion in borrowing, but that projection has since gone down by $125 million.

The administration projected $1.2 billion in 2022-23 and borrowed $830 million; and projected $875 million the year before that — and borrowed $500 million.

Connecticut issued an annual average of $725 million in transportation bonds between 2015 and 2018 under Gov. Dannel P. Malloy, according to debt reports from the state treasurer’s office. During Lamont’s first term, the annual average ticked upward just 2.6%, reaching an average of $744 million — even though STF revenues grew 22% over those four years.

But the third year has just begun on a five-year federal program to invest $1.2 trillion in the state’s transportation projects, and construction industries and trades both said Wednesday that Lamont can’t afford to wait any longer to get significantly more projects underway.

“Everyone knows infrastructure investments are the highest return on investments,” said Don Shubert, president of the Connecticut Construction Industry Association, who added the state should be borrowing and investing closer to $1.5 billion annually in transportation projects. “And failing to maximize all available federal funding and failing to invest at this point is a tremendous, missed opportunity for the state.”

Nate Brown, president of International Union of Operating Engineers, Local 478, said hitting the $1 billion borrowing target isn’t sufficient.

“We have to exceed the target,” he said. “We have the opportunity of a lifetime. There’s people and contractors who are more than ready to go.”

Travis Woodward, president of CSEA-SEIU Local 2001 and a supervising engineer with the state DOT, said the department has too many vacancies in engineering and other key professional posts. “We desperately need to hire before the next retirement wave hits,” he said.

Battling NY for tax dollars

Lamont’s new budget doesn’t include any major tax cuts — which was expected given the huge reductions he and the legislature approved in each of the past two sessions.

Low- and middle-income households are expected to save about $460 million next fiscal year from the largest income tax cut in state history. The changes, approved last year, include both rate reductions and several enhanced credits.

The governor did recommend about $3.5 million in fee reductions, removing initial application fees in understaffed fields including nurses, teachers and child care workers.

But the administration hopes to bolster the state’s coffers by as much as $200 million annually in future years, by challenging controversial “Convenience of the Employer” rules in New York state.

Connecticut officials argue that New York rules unfairly require many Connecticut residents who work remotely from home for New York-based employers to pay taxes to the Empire State.

Lamont is urging residents to challenge the New York rules in court. Those that are successful and receive a refund from New York would then owe taxes to Connecticut.

Lamont proposes to add a 50% income tax credit to those challengers and to waive any penalties Connecticut could claim against them.

A spokeswoman for N.Y. Gov. Kathy Hochul could not be reached for comment Wednesday morning.

Federal COVID relief

Lamont’s proposal also hinges on repurposing $55.7 million in unspent federal COVID-relief grants, which provide great fiscal flexibility because they can be spent outside of the cap system. But the shifting of these American Rescue Plan Act funds is expected to spark many questions from legislators, specifically: How much money have state agencies that received federal grants left unspent?

All states must designate how these funds will be used and must spend them by Dec. 31. Any entity hired by a state with ARPA dollars can spend them as late as Dec. 31, 2026.

Legislators also are expected to press Lamont over how much of this fiscal year’s surplus can be used to support the next state budget. Even though the governor recommended boosting the planned “carryforward” from $95 million to $140 million, his fellow Democrats in the House and Senate majorities have suggested using between $200 million and $300 million to support numerous initiatives in health care, social services and education.

Lamont also may face criticism for sweeping more than $16 million from a program that shares a portion of state sales tax receipts with cities and towns. The administration says this transfer would not impact municipal grants in the upcoming fiscal year, but it was not clear Wednesday whether that could trigger challenges a few years down the road.

Other changes

Lamont also proposed folding the Connecticut Port Authority into the Connecticut Airport Authority, consolidating the management of the state’s harbors and aviation facilities under one umbrella. 

David Kooris, the current chairman of the Connecticut Port Authority, mentioned the potential merger between the two quasi-public agencies during a meeting last fall, but little has been mentioned publicly about the plan since then.

The Port Authority has been an issue for the Lamont administration for years, largely because of the escalating cost of the redevelopment of the State Pier in New London. That project, which is now reaching completion, is meant to transform the port facility into a launching pad for offshore wind projects in the Atlantic. But the cost of the project ballooned from an estimated $93 million to more than $300 million. 

The Lamont administration also proposed restructuring payments into the pension plan for state judges to save $14.3 million next fiscal year. Connecticut restructured payments into the state employees’ pension in 2017 and 2019 and contributions to the teachers’ pension in 2019.

The governor would make several small adjustments to economic development initiatives, including an additional $1 million for the state tourism office’s marketing efforts. That additional support could generate an estimated $389 million in local spending by visitors to the state, according to the proposal.

The budget adds $280,000 to expand labor department efforts to coordinate more apprenticeships and $100,000 to create a career center within the state’s technical school system, to be situated at Vinal Technical High School in Middletown. And it maintains the current level of funding for various job training programs including the Office of Workforce Strategy, the Building Trades Training Proram and the Manufacturing Pipeline Initiative

The CT Youth Employment Program – which expected $10 million last year, but received only $5 million after late-stage negotiations among lawmakers – will not see its budget increase under Lamont’s proposal this year.

Original article found at CT Mirror.

Connecticut’s Minimum Wage to Increase by 69 Cents in January

Connecticut’s minimum wage will rise to $15.69 in January under the first annual adjustment required by a 2019 law tying the wage to the employment cost index.

The automatic 4.6% increase is dictated by a U.S. Bureau of Labor metric used to measure hourly labor costs.

“This is a big deal, it will make a difference,” Gov. Ned Lamont said during a press conference at Windham Town Hall.

Lawmakers voted to gradually increase the minimum wage from $10.10 in 2019 to $15 as of June, but they also approved increasing the rate every year based on the ECI.

Ed Hawthorne, president of Connecticut AFL-CIO, praised lawmakers and Lamont for changing the law so minimum wage increases no longer need regular votes by the legislature.

“It always looks good when you’re hitting doors and you’ve got it on the card ‘I voted to pass the minimum,’ but the real vision that everyone here showed to do the right thing rather than the political thing cannot be left unsaid,” he said.

The announcement comes less than a week after the U.S. Labor Bureau reported that the Consumer Price Index was at 3.7% on an annual basis in August.

Lt. Gov. Susan Bysiwiecz estimated that 10% of Connecticut’s workforce will benefit from the increase. She also cited a Center for American Progress report estimating 114,000 children statewide live in households with a parent making at or below minimum wage.

“A lot of people think that the minimum wage is something that teenagers make, but no, there are so many adults out there in our state that are trying to support their families,” she said.

Officials in Windham celebrated the announcement. Town Manager Thomas DeVivo said the rural community ranks 168th, out of 169 towns, in terms of having the lowest wage earners.

“This will help people pay their rent, this will help people keep on top of it so they don’t end up in homelessness or other issues,” he said.

Connecticut Business and Industry Association Vice President of Public Policy Eric Gjede said the increase will hurt businesses, though, especially since the it will come six months after the minimum wage rose from $14 to $15.

Still, he said most employers are already paying above $15.69.

“We are struggling in just finding employees, so our businesses are forced to pay even higher wages and provide even more benefits,” he said.

Some speakers, including Lamont and Hawthorne, touted that the indexed increases give businesses predictability. Gjede disagreed.

“I don’t know that it is going to provide predictability other than knowing that it’s going up, but of course we don’t know by how much until they make this announcement every year,” he said.

Lamont said the increase, coupled with other measures by the state, will help working families. That, in turn, is good for the economy, he said.

Lamont pointed to the current budget, which cut in the income tax and raised the Earned Income Tax Credit, as measures that help lower income families.

He also said the state has other programs to help, including workforce development programs and expanded support for childcare. When asked about restoring the Child Tax Credit Monday, Lamont focused on those other programs and benefits.

“I think there are a lot of ways we’re making life a little more affordable for people, and I think that’s the way we should go,” he said.

Original article found at CT News Junkie.

Lamont and Legislative Leaders Agree on Gas-Tax Holiday

Gov. Ned Lamont and legislative leaders agreed in principle on a sales-tax holiday, free CT Transit bus service for a month and a suspension of the state’s 25-cent-a-gallon retail tax on gasoline until June 30. If passed by the legislature, the state would forgo about $100 million in revenue, providing some relief to taxpayers and election-year talking points to politicians as inflation hits the highest point since the midterm elections of 1982.
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