The controversial program designed to prevent lawmakers from spending “volatile” tax revenues continues to raise large amounts of dollars year after year, a contradiction that continues to frustrate those seeking to shore up basic programs.
Governor Ned Lamont’s administration recently projected that Connecticut will close its fiscal year on June 30 with 1.35 billion dollars left over. That includes an operating surplus of $225 million and more than $1.1 billion in tax revenues too unstable to spend.
Those figures, which will not be made official until they are audited by the comptroller’s office in September, would mark the sixth time in the seven-year history of the volatility adjustment that at least $950 million has been raised. It still managed to raise $530 million in 2020, when the coronavirus outbreak plunged state finances into chaos.
And since analysts recently projected that it would continue to monopolize Between $800 and $1.2 billion each year until 2028Critics say the system is diverting hundreds of millions of dollars from education, social services and health care by incorrectly labeling those dollars as volatile.
Connecticut’s fiscal oxymoron — which has reliable and volatile revenues — can no longer be ignored, said Rep. Josh Elliott, D-Hamden, founder of the 40-member House Tax Fairness Caucus.
“The volatile revenue we’re generating is not (all) really volatile,” he added. “We are completely ignoring the fact that there is a need right now.”
A program that was supposed to raise big dollars in some years, and none in others, has now raised an average of $1.4 billion annually since its launch in 2017-2018. This average exceeds 6% of the total of the next state budget General Fund.
And if analysts’ latest projections are correct, the volatility adjustment will rake in hundreds of millions of dollars a year (without failing even once) over its first 11 years, raking in an average of $1.2 billion per year between 2018 and 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 ensuring healthy annual surpluses.
Sen. Cathy Osten, D-Sprague, co-chair of the Appropriations Committee, said the savings program adopted in 2017 to help end a series of budget deficits “changed the trajectory of Connecticut’s finances. But we have (other) obligations that we must consider. … We have to be realistic about our expenses as we move forward.”
The road ahead for Lamont and his fellow Democrats in the legislative majority is fraught with challenges.
The governor is reluctant to change the savings program 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 increase a record $3.3 billion rainy day fund to an even larger $4 billion, or 17.7% without precedent annual operating expenses, and to pay for reducing another $622 million in state pension debt.
If so, Connecticut will have funneled $8.3 billion in surplus dollars into its pensions since 2020. The state started this year with more than 37 billion dollars in unfunded pension obligations, a huge disaster created by more than 70 years of inadequate savings between 1939 and 2010.
“Connecticut’s fiscal outlook remains strong,” said Lamont budget spokesman Chris Collibee, noting that the state offered big tax cuts in 2022 and 2023 while increasing funding for core programs, although not as much as its defenders wanted.
“Wall Street has noticed, too,” he said, noting that two credit rating agencies have raised their assessments of Connecticut in the last 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 during the 2010s by deficits, are now deteriorating rapidly, and state payments have not grown proportionately to 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 parts of the last two state budget surpluses — to shore 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 will need to replace those funds or cut programs.
Rep. Jillian Gilchrest, D-West Hartford, co-chair of the Human Services Committee, said Connecticut faces serious challenges in education, housing, food insecurity and access to health care, and a meaningful response cannot be delayed.
“I don’t think we can have any of the other conversations we need to have until we have a discussion about guardrails,” he said.
Elliott added that Democrats, who have controlled the state House since 1987 and the Senate since 1997, are risking their numbers by ignoring growing disparities in Connecticut.
“People elect Democrats specifically because of the investments Democrats want to make in education, housing and infrastructure,” he said, adding that while paying off Connecticut’s inherited debt is important, “to maintain majorities, we must also make sure that our constituents are served here and now.”
The Coalition of State Employee Bargaining Agents, which represents nearly all of the major unions within state government, issued a statement this week calling for a course correction in Connecticut’s aggressive savings efforts.
“There are important and pressing issues facing our state: skyrocketing housing and healthcare costs, underfunded schools from K-12 through higher education, and a woefully inadequate child care system, to name a few,” said President Travis Woodward. from CSEA-SEIU Local. 2001. “The Governor and General Assembly must accept the fact that ‘tax barriers’ are making things worse for Connecticut families. Instead of diverting funds into excessive surpluses, we must prioritize investment in our infrastructure, education, healthcare and other essential services to ensure a prosperous and equitable future for all.”
Connecticut for All, a coalition of more than 60 labor, faith-based and civic organizations, also said the government needs to reduce its savings and focus more on ailing programs.
“While Governor Lamont is choosing to irresponsibly divert tax dollars from critical investments to accumulate an even larger surplus, schools across the state are closed due to lack of funding, workers are struggling to make ends meet and “Patients are choosing to postpone medical care in the face of rising healthcare costs,” said Norma Martinez-HoSang, director of the coalition. “We must invest these funds to address the deep racial, gender and economic inequalities across our state before it is too late to have an impact on this generation.”
But Collibee said such discussions about the next budget are premature.
The governor’s next budget proposal “will be based on the kitchen table budget — in other words, residents’ ability to pay,” he said. “If we are going to continue to create jobs in our state and ensure that our children and seniors continue to live in our state, our budget must be sustainable. The administration is willing to listen to reasonable ideas from all parties on the best way forward. Connecticut Forward.”
Lamont will have allies among Republican lawmakers when it comes to leaving the savings program running as is.
“If we go back to that practice … of not being responsible in managing large debt payments,” Sen. Eric Berthel of Watertown, the committee’s ranking Republican senator, told The Connecticut Mirror in early June of Appropriations, “it will snowball.” into something much bigger.”
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