Are Connecticut fiscal guardrails squeezing out state spending on core programs like education, health care and social services?
WSHU’s Ebong Udoma spoke with CT Mirror’s Keith M. Phaneuf to discuss his article "A question of volatility: Are Connecticut’s fiscal guardrails in the right place?" as part of the collaborative podcast Long Story Short.
WSHU: Keith, you know, you've done a deep dive into Connecticut's 2017 fiscal guardrails? Are they keeping us safe? Or are they paralyzing us?
KP: It's kind of a little bit of both. The common mantra you will hear from the folks who love the guardrails is they're doing a great job. And I think it's undisputed. They're doing a great job if you're judging them by say, the rainy day fund. In a relatively short time, we went from having relatively little in the reserve to more than $3.3 billion. They're certainly working wonderfully if you're talking about reducing our pension debt, which is still very formidable, but we've made supplemental payments that are taking about $7.7 billion away from that. So in that sense, absolutely.
But I think what I've found working on this is that legislators have broadened the criteria by which they're judging those guardrails. And what they're finding is that because of the way they're calibrated, they are taking away necessary dollars from core programs. And the reason I say the way they're calibrated is, that this is not a debate about should we repeal the guardrails any more than if you were hot in your house in the winter, you would throw out your furnace, you might lower the thermostat, but you're not going to throw out the entire system. I think some legislators feel that the guardrails and the mandatory savings programs in them are not only forcing the legislature to save volatile revenues that might be too dangerous to spend because they might only come in in certain years. It's actually also forcing them to save stable revenues that come in year after year. And that is needed, particularly since the pandemic.
WSHU: That's very interesting, because I saw the analysis that you did there, because the figure that was picked in 2017 was a little bit over $3 billion dollars, right? Anything over that would now go to pay down the pension debt. How did that number come about? Why should we stick to that number? Is that the real number we should be using?
KP: As usual, Ebong, you cut right to the heart of the matter. And I don't mean in my answer to you to vilify the 2017 legislature just from some historical context. They were battling from early February until Halloween to adopt a new budget. And in the end, they were really pressed for time. There were some concerns that then-Governor Malloy might even be withholding some municipal aid if they couldn't get a budget together.
So they wanted a budget with a new savings program. And they said, okay, we can agree on what revenue streams are volatile. These are quarterly income tax receipts tied to capital gains and dividends, certain quarterly business tax receipts from a category where a lot of hedge funds are located. But then they said, alright, but how much is volatile when we're not going to take all the money from these revenue streams and put it out of reach and say we can't spend it? So how much is volatile?
And like you said, they simply said, how much did these revenue sources bring in last year? $3 billion. Okay. That's the magic number. That's the threshold, we'll adjust it annually for the growth in income. But that foundation is where we starting from. And that's what's key. And what we found looking at it historically, as it turned out, 2017, the year they picked was really an outlier year. It was a you can make an argument from a fiscal standpoint, it was kind of a sickly year for the state budget. And we kind of define that as a typical year, that's a year of good health, and anything that can beat that we can't spend that extra money. Well, it turns out, it's pretty easy to beat that threshold.
WSHU: Wow. So since then, we have been getting a lot more than that. And that money has been going to pay down our pension debt. Now, that isn't, isn't not helping out that doesn't that free up some more money for us to be able to use in the budget?
KP: It absolutely does. By paying down the pension debt. We have probably about...I want to phrase this correctly, about $650 million more each year to spend than we otherwise would. That is not the same as saying it went down $650 million from what we paid last year to this year. Because of all of our poor savings habits. When it comes to pensions, we built up pension debt over 70 years; our required payments are going up and up and up. We've smoothed them out somewhat and stretched them out over longer periods, but they're still going up. So even with these savings you just pointed out, our pension contributions are not year over year going down. They're just not growing as fast as they otherwise would. So that's a good thing. But the point is, we're going to be doing this exercise, we're going to be working on this pension debt until about the year 2050.
So, at some point, the state is going to have to deal with that and try to figure out if we still have enough money for core programs. And while, as you pointed out, carved out by paying down the pension debt, about $600 million and an extra spending room that we wouldn't otherwise have. Our volatility program alone, one of our savings guardrails, just that one has been saving an average of $1.3 billion a year. It's questionable whether all of that is unstable money. Again, I don't think people want to abandon the savings programs. It's simply a question ofwhether we have to save at the same very aggressive pace. Or could we modestly scale back the savings? Still, be ahead of the game and put some more money into education, health care, and social services.
WSHU: Now, you asked Governor Lamont about this. And he has been a stickler for sticking to the guardrails as they were crafted in 2017. What's his explanation to you?
KP: I think largely the governor points to the fact that our rainy day fund is full. And that is a big safety program for all of our line items in our budget. When you go into a recession, you might have to cut those programs if you don't have a good rainy day fund. So that's certainly been very important. It's also significant, as he points out, that we paid down all this pension debt. I think, though, where you can question Governor Lamont's argument is when he says, 'And we're still investing at record levels.' Well, the problem is, it's not hard to beat some of those record levels. Because of our pension debt, Connecticut had been siphoning resources to cover our annual pension contribution, siphoning resources for decades away from schools, away from health care, and once-in-a-century away from social services. And that was before a once in a century pandemic made things very worse. And as you know, we're a state of tremendous income and wealth inequality. And in some places where it's bad, it's really bad.
WSHU: Now, one of the architects of this of this deal is Senator John Fonfara, and he seems to be willing to, you know, modify some of the guardrails. Could you explain his sentiment about this? And is there any chance that we could get some type of modification in this upcoming legislative session?
KP: Sure, as you said, Senator John Fonfara, he's a Democrat from Hartford, has been one of the most vocal advocates for Connecticut, not spending all of the money it receives from volatile sources. And he's got a lot of evidence to support that throughout the 90s and throughout the 2000s when times were good, we would assume boom, revenues, were always going to be coming in year after year, and we would spend very aggressively.
I don't think anybody wants to go back to that. But it is Senator Fonfara who comes from one of the poorest communities in Connecticut. He's been very frustrated that he feels the state has not done enough to help. Cities like Hartford, and Bridgeport, and New Haven have greater economic opportunities. He called the budget a couple of years ago a knee on the neck of the Black community. And he has said, I'm paraphrasing, but if you're not throwing out the baby with the bathwater if you're not going to toss out the entire system, and you're simply saying, maybe we should change how much we save versus how much we spend. We can have that conversation. I don't think he's looking for wholesale changes. But if there's something reasonable, that's going to help communities prosper more by investing in them, I think then you can have that conversation with them.
The second part of your question is, will it happen this session? I think the conversations will begin, but I don't think they'll end simply because 2024 is a state election year. Legislators really, when they're running for reelection, want to get out on time; the regular session ends on May 8. I don't know if there's time for a prolonged debate on the guardrail. So I think they'll try to find some type of a patchwork approach to get through this year. And then maybe in 2025, we buckled down for another long session.
WSHU: So for the social service agencies and the education and health care, we might have to wait another year before getting some more money.
KP: Well, keep in mind, I'd bet on the Red Sox every year so tell you about my prognosticating skills, but I do think if you talk to most of the advocates, they're gonna give it their best attempt, but they're tempering their expectations this year.
