The controversial program designed to bar legislators from spending “volatile” tax receipts continues to collect big dollars year after year, a contradiction that continues to frustrate those seeking to bolster core programs.
Gov. Ned Lamont’s administration recently projected Connecticut will close its fiscal year on June 30 with $1.35 billion left over. That includes a $225 million operating surplus and more than $1.1 billion in tax receipts too unstable to spend.
Those numbers, which won’t become official until audited by the comptroller’s office in September, would mark the sixth time in the volatility adjustment’s seven-year history it’s collected at least $950 million. It still managed to grab $530 million in 2020 when the coronavirus outbreak threw state finances into chaos.
And with analysts recently projecting it would continue to grab $800 million to $1.2 billion each year through 2028, critics say the system is ripping hundreds of millions away from education, social services and health care by inaccurately labelling those dollars as volatile.
Connecticut’s fiscal oxymoron — that it has reliable volatile revenue — can’t be ignored any longer, said Rep. Josh Elliott, D-Hamden, founder of the 40-member House Tax Equity Caucus.
“The volatile revenue we’re bringing in is not [all] truly volatile,” he added. “We are totally ignoring the fact that there is need right now.”
A program that was supposed to capture big dollars in some years — and none in others — now has grabbed an average of $1.4 billion annually since its launch in 2017-18. That average exceeds 6% of the next state budget’s entire General Fund.
And if analysts’ latest projections are correct, the volatility adjustment will capture hundreds of millions of dollars annually — without failing once — through its first 11 years, taking in an average of $1.2 billion per year between 2018 and 2028.
No legislator has proposed repealing the program. But progressives say it could be scaled back, returning some funds to core programs while still ensuring healthy annual surpluses.
Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee, said the savings program adopted in 2017 to help end a string of budget deficits “changed the trajectory of Connecticut’s finances. But we do have [other] obligations that have to be considered. … We have to be realistic about our expenses as we move forward.”
The road ahead for Lamont and his fellow Democrats in the legislature’s majority is fraught with challenges.
The governor is loath to change the savings program at all and often refers to it and other budget controls as the state’s “fiscal guardrails.”
His budget office recently estimated that the $1.35 billion windfall from the outgoing fiscal year will be used to boost a record-setting $3.3 billion rainy day fund to an even higher $4 billion, equal to an unprecedented 17.7% of annual operating expenses, and to pay down another $622 million of state pension debt.
If so, Connecticut will have channeled $8.3 billion in surplus dollars into its pensions since 2020. The state entered this year with more than $37 billion in unfunded pension obligations, an enormous mess created by more than 70 years of improper savings between 1939 and 2010.
“Connecticut’s fiscal outlook remains strong,” said Lamont budget spokesman Chris Collibee, who noted that the state offered big tax cuts in 2022 and 2023 while still increasing funding for core programs, albeit not by as much as advocates wanted.
“Wall Street has taken notice as well,” he said, noting two credit rating agencies have raised their assessments of Connecticut in the past month, a move that sometimes leads to borrowing at lower interest rates.
But many of Lamont’s colleagues in the legislature argue that core programs, which were shortchanged throughout the 2010s because of deficits, now are deteriorating quickly — and state payments haven’t grown commensurate with inflation for many years.
The two sides avoided a fight this spring by using more than $700 million in funds from temporary sources — expiring federal pandemic grants and portions of the past two state budget surpluses — to prop up public colleges and universities, social services and health clinics.
But when officials return to the Capitol next January and begin work on the next biennial state budget, they must either replace those funds or cut programs.
Rep. Jillian Gilchrest, D-West Hartford, co-chairwoman of the Human Services Committee, said Connecticut is facing severe challenges in education, housing, food insecurity and health care access, and a significant response can’t be deferred.
“I don’t think we can have any of the other conversations we need to have until we have a discussion about the guardrails,” she said.
Elliott added that Democrats, who have controlled the state House since 1987 and the Senate since 1997, are risking their numbers by ignoring the growing disparities in Connecticut.
“People elect Democrats specifically because of investments Democrats want to make in education, housing and infrastructure,” he said, adding that while paying down Connecticut’s legacy debt is important, “to keep the majorities, we also need to be ensuring that our constituencies are served here and now.”
The State Employees Bargaining Agent Coalition, which represents nearly all major unions within state government, issued a statement this week calling for a course correction in Connecticut’s aggressive savings efforts.
“There are major, pressing issues facing our state: skyrocketing housing and health care costs, underfunded schools from K-12 through higher education, and a woefully inadequate childcare system to name a few,” said Travis Woodward, president of CSEA-SEIU Local 2001. “The governor and the General Assembly need to come to terms with the fact that the ‘fiscal guardrails’ are making things worse for Connecticut families. Instead of diverting funds into an over-stuffed surplus, we must prioritize investing in our infrastructure, education, health care, and other essential services to ensure a prosperous and equitable future for all.”
Connecticut for All, a coalition of more than 60 labor, faith and other civic organizations, also said government needs to scale back its savings and focus more on programs in crisis.
“While Gov. Lamont is opting to irresponsibly divert tax dollars from critical investments to amass an even larger surplus, schools across the state are shuttered from underfunding, workers are scraping by to make ends meet, and patients are opting to push off care in the face of skyrocketing healthcare costs,” said Norma Martinez-HoSang, the coalition’s director. “We must invest these funds to address the deep racial, gender, and economic inequities across our state before it’s too late to have an impact in this generation.”
But Collibee said such discussions about the next budget are premature.
The governor’s next budget proposal “will be based on kitchen-table budgeting — in other words, the ability of residents to pay,” he said. “If we are going to continue growing jobs in our state and ensure that our children and seniors remain living in our state, our budget must be sustainable. The administration is willing to listen to reasonable ideas from all parties about how best to continue to move Connecticut forward.”
Lamont will have allies among Republican legislators when it comes to leaving the savings program functioning as is.
“If we get back to that practice … of not being responsible in managing the payments on super-sized debt,” Sen. Eric Berthel of Watertown, ranking GOP senator on the Appropriations Committee, told The Connecticut Mirror earlier in June, “it snowballs into something much bigger.”