Legislative candidates going door-to-door in their districts this fall rarely find willing listeners when they attempt to discuss the finer points of the “volatility adjustment.”
Nor do candidate forums debating the merits of the budget caps draw much interest.
This is hardly surprising.
The complex array of rules, not to mention jargon-laden language, that comprise the state’s fiscal controls don’t translate well to the campaign trail leading to this November’s state election.
But with many anticipating a watershed debate next year on whether to reform these “fiscal guardrails,” it’s impossible for candidates to avoid the issue, especially as the stakes are so high. The guardrails are either destroying education, health care and other essential public services, according to some, or saving Connecticut from fiscal ruin in the opinion of others.
The riddle politicians and various interest groups are trying to solve, is how to frame that discussion before a bored electorate shuts it down?
The hook for some is the argument that the financial fate of Connecticut’s children hangs in the balance.
Others try a more parochial approach: If you’ve wondered why your community doesn’t receive more state funding, the answer lies between these “guardrails.”
One of the state’s most progressive grassroots coalitions is dabbling with re-branding, offering “fiscal roadblocks” as an alternative nickname and arguing that the status quo is disguising a tax system that forces poor residents to pay almost six times the rate as Connecticut’s richest households.
Those candidates who think the system is working just fine, on the other hand, steer voters back to past fiscal nightmares, noting three major state tax hikes imposed between 2009 and 2017 — and the fact that none have happened since these budget rules were created.
When the guardrails are presented in detail, “It’s not a politically gravitating issue,” said Senate Minority Leader Stephen Harding, R-Brookfield, an ardent supporter of fiscal restraint. “It’s generally not going to get somebody off their busy life … to go cast their ballot.”
“It’s so in the weeds,” said Rep. Jillian Gilchrest, D-West Hartford, co-chairwoman of the Human Services Committee and a strong advocate for reforming the guardrails. “I think the average voter thinks it’s one big thing” rather than a series of controls that could be adjusted without collapsing. “It’s not an all-or-nothing.”
So, what are these rules, exactly? They generally fall into three categories.
There’s a spending cap designed to keep budget growth in line with household income and inflation. A few exceptions, like spending on bonded debt, can grow faster.
But there are ways around that cap, so there are other spending controls. The “volatility adjustment” forces legislators to save a big chunk of quarterly income and business tax receipts, revenues that fluctuate significantly from year to year. And the “revenue cap” ensures each budget has roughly 1% less spending than revenue — a cushion equal to almost $300 million this year to guard against unexpected cost overruns.
The final “guardrail” seeks to control the state’s credit card, limiting the bonds government can sell to Wall Street investors to finance school construction, state building maintenance and other capital projects.
Since 2017, the state has used more than $12 billion in budget surpluses to build reserves or pay down a hefty pension debt amassed between the late 1930s and 2011. During the 2010s that pension debt was a leading culprit behind several deficits and tax increases.
Connecticut also promised its bond investors not to change these “guardrails” significantly before July 2028. But they aren’t etched in stone, and small adjustments can be made with a 60% vote of the legislature and the governor’s approval.
‘Fiscal guardrails’ or ‘fiscal roadblocks?’
Critics of this system charge it’s stifling spending far more than anticipated. Rather than saving modest amounts periodically, the volatility adjustment has barred legislators from spending 7% of all revenues, about $1.4 billion annually, in its first seven years. Analysts say it will continue to take close to $1 billion off the table through 2028.
Meanwhile, many core services that were strained during the early years of the pandemic are heading into crisis, critics charge.
When Gilchrest and her co-chair, Sen. Matt Lesser, D-Middletown, go door-to-door in their respective districts, they cite the fiscal guardrails when voters want an explanation for why various services have been scaled back or become more expensive.
Why is community college tuition this fall up 11% from two years ago?
Guardrails.
Why hasn’t Connecticut adjusted all of the Medicaid rates it pays doctors who accept Medicaid patients since 2008, even though the state ranks 42nd, just ahead of West Virginia, in what it pays most specialists?
Guardrails.
Why are there huge waiting lists for key programs serving people with disabilities?
Yep, you guessed it. Guardrails.
“We can’t invest in anything without adjusting or tweaking the guardrails in some way,” Lesser said he explains to voters, adding that Connecticut could put more into programs and still save big dollars each year — albeit not as much as it is right now.
Similarly, the Connecticut Conference of Municipalities is trying to build support this fall for an unprecedented overhaul of support services to help thousands of youths in crisis. Those reforms likely couldn’t be launched without boosting state taxes — unless legislators rewrite the budget controls and agree to save less.
With an estimated 119,000 children at-risk or in crisis, CCM Executive Director Joe DeLong said people in many communities understand that problem clearly.
“The guardrails are a wonky issue, but [voters’] priorities may not be wonky,” he said, adding that in most communities, childrens’ needs are obvious.
Connecticut For All, a progressive coalition of more than 60 faith, labor and civic organizations, has begun calling these controls “fiscal roadblocks” in its campaign for reform this fall.
But coalition Director Norma Martinez-HoSang said these controls do more than just block investment in education, health care, social services and transportation. Because they limit spending, they also keep talk of tax changes off the legislature’s agenda — which isn’t always a good thing.
Connecticut For All and other progressive groups support a new $600 per child state income tax credit for low- and middle-income families, which government could afford simply by saving less than it currently does.
The state’s last tax fairness study found Connecticut’s poorest households effectively paid almost 40% of their income in 2022 to cover state and municipal tax burdens, while the middle class paid 11.5% to 13% and the wealthiest households just 7%.
Even after the state tax cuts Gov. Ned Lamont and lawmakers approved in 2022 are applied, the poor still pay more than four times the rate of the wealthy, and the middle class also faced much heavier burdens than did top earners.
Martinez-HoSang said many voters may not know all details of the budget controls, but they understand how Connecticut’s upside-down tax system feels.
“Their lived experience of year to year having to fight [through] problems doesn’t need a lot of explanation,” she added.
Are ‘guardrails’ sparing CT’s children from a huge bill?
Advocates for budget reform aren’t the only people trying to pull voters into the guardrails debate.
The Yankee Institute for Public Policy, a conservative think-tank based in Hartford, recently released a study estimating Connecticut could pay off its huge pension debt — $37 billion owed entering this year — by 2038, well in advance of the 2051 projection it currently faces.
But that would require not only sticking to the budget controls, but trying to save about 30% more each year. The more dollars placed in pension funds, the more investment earnings the state can make and the less it must seek from taxpayers.
If legislators could squeeze even more dollars out of core programs, and if good economic fortunes continue, future generations could be spared nearly $7 billion in pension debt payments, Yankee asserts.
“A lot of people do understand that the guardrails are a gift that keeps giving to Connecticut’s children,” said Yankee President Carol Platt Liebau.
Harding and his House Republican counterpart, Vincent J. Candelora of North Branford, say the message of shielding Connecticut’s children from future taxes is a good one.
But the GOP leaders said voters also engage on the topic simply by being reminded of the tax hikes they faced not long ago.
Connecticut legislatures and governors imposed three of the largest tax hikes in state history between 2009 and 2017 — each of which included a state income tax rate increase. During this period the state also whittled down a tax credit that helps middle-class families cover their local property tax bills from $500 to $100.
Since the budget controls were enacted in 2017, income tax rates not only haven’t increased, but were reduced two years ago. And the property tax credit has been partially restored to $300.
“They [voters] all nod along,” Candelora said. “They understand we need to get government spending under control.”
Some understand fiscal controls very well
Not all voters are uninformed about the intricacies of state government’s budget controls, however.
Having watched lawmakers and governors impose a surcharge on the corporation tax 20 of the past 23 years — breaking several promises to phase it out along the way — many Connecticut companies have educated themselves on state fiscal policy.
“It’s unusual for us to talk to a business and have to say ‘are you aware of the fiscal guardrails?’” said Chris DiPentima, president and CEO of the Connecticut Business and Industry Association, which wants to keep state savings efforts intact.
Too often, legislative budget decisions have “hit businesses and their employees head on,” he said.
Similarly, labor unions often can quote chapter and verse on the budget controls because of the impact they’ve had on their members.
Connecticut, which sought and received concessions from unions in 2009, 2011 and 2017, hasn’t gone for another since the budget controls were enacted.
But that doesn’t mean the state’s aggressive savings efforts haven’t taken a toll on labor in recent years.
Despite having been reduced by about 10% between 2011 and 2018, the Executive Branch workforce continued to drop during Lamont’s first term as many vacancies were left unfilled.
More than 4,400 senior workers retired between Jan. 1 and June 30, 2022 alone — roughly double the retirements of an average year — as many workers stepped down just before new restrictions on pension benefits took effect. Most labor leaders now say the bulk of state agencies face a staffing crisis.
But even union members and other voters who don’t know the intricacies of fiscal policy generally understand there’s a huge underlying issue that has to be addressed, Martinez-HoSang said.
“All of that is technical and some of us get stuck on that,” she said. But “at the end of the day, there still needs to be a conversation about the kind of transformative investments that Connecticut needs.”