Connecticut has been what some would consider to be uncharacteristically fiscally disciplined in the last several years.
WSHU’s Ebong Udoma spoke with CT Mirror’s Keith Phaneuf to discuss his article, “Lamont’s fiscal success rests on foundation laid by Malloy, others,” as part of the collaborative podcast Long Story Short. Read Keith’s story here.
WSHU: Hello, Keith. You say covering state finances during former Governor Daniel Malloy's first term in 2011 was like trying to interview Smokey the Bear while the California redwoods were going up in a blaze. It's hard to remember that Connecticut's finances were that bad.
KP: They were. That's the short answer. They really were. Governor Malloy and the legislature that served, particularly during his first term, seemed to have a forest fire to put out — a fiscal forest fire. Say that three times fast. We had the largest deficit in modern history. I mean, almost one out of every $5 in the state budget, effectively, was missing. They had inherited no rainy day fund and a billion dollars in operating debt from payoff to payoff from the last administration. So, it was just very different.
WSHU: So basically, there were two things going on here. First, there were tax hikes that Malloy passed, and then the fiscal guardrails that were created by the legislature in a bipartisan way in 2017. Could you just tell us about those two things that made a difference in our finances?
KP: Sure. Quickly, though, on the tax hikes, I'd elaborate a little on that. It was a progressive tax hike in the sense that the wealthy were asked to pay more, but the middle class was taxed as well. But absolutely, the emphasis was placed in a way it really had not been before to that extent on higher-earning households, but there also was a pretty significant labor concessions package that was put in, and municipal aid was not cut, but quite a few programs also the governor had tightened the belts on, so there was a reason they called that shared sacrifice. That was in 2011, and then you had another major tax hike, including the income tax, in 2015.
In 2017, that was the legislature that served with Governor Molly, not only taking the lead but basically doing it without him. They weren't able to reach an agreement amongst themselves at first or with the governor, and they actually froze the governor out of and his administration out of the budget negotiations, and it was both parties making a decision to put in a much more stringent spending cap than we have right now, but also to create this very controversial new savings program that takes a portion — not all, but a portion — of our income tax receipts and a portion of business tax receipts and actually pulls them outside of the budget. We're actually siphoning money away from municipal aid, healthcare, and education. Again, it's not money lying idle, and we're generating surpluses of nearly 9% every year. Putting that money in the pensions, the 2017 legislature never realized that these caps were going to generate anywhere near close to that. Last point: in the two decades prior to the enactment of these caps in 2017, the average budget closed with a 0.1 percent surplus.
WSHU: Wow!
KP: Since then, it's been about 8.8. In other words, 88 times as a percentage, because I want to equalize this for inflation. These are much larger surpluses we're forcing, and that is why some of Governor Lamont's more progressive colleagues in the General Assembly are saying we are trying; our pension debt was amassed over 70 years, three generations, we're trying. We've got a system where one generation is being forced to solve a pension crisis created by three, and if we try to solve it too quickly, you know, over 20-25 years, our programs will suffer.
WSHU: But Lamont, as he touts his fiscal management, he's being criticized by Republicans for loosening some of the guardrails. Is that actually what's going on here? What's actually happening as far as our finances are concerned? Is Lamont right that his fiscal management has held the line?
KP: There absolutely is some truth to it. There's a little more perspective to it, though. Two years ago, and forgive me. I am going to pat myself on the back here. I ran a large series looking at the guardrails, simply saying mathematically, nobody has ever saved like this. It's not sustainable. The only reason the guardrails mathematically did not collapse earlier is that the pandemic had resulted in a program known by the acronym ARPA and Coronavirus relief fund money. We're talking, between the two, about $4.1 billion of flexible federal grant money that we could spend outside the budget on anything that was available. Think of it like fiscal Novocaine. Even as the guardrails were extracting state dollars each year from the budget, saying you can't spend them, we'd have this federal pandemic money that you could spend in its place.
WSHU: And in the meantime, Governor Ned Lamont touts his fiscal management as one of his greatest achievements as he runs for a third term in office.
KP: Well, Governor Lamont deserves credit, in particular, for not spending the money. And people might say, "Well, how hard is that? To which I would respond, "It is unbelievably hard.” Unfortunately, I can still remember legislatures in the late '90s, in the early and mid-2000s that ran up big surpluses, and two-thirds of all that money got spent. Governor Lamont absolutely has made it much more difficult for legislators to spend money on other programs, and has forced them to prioritize paying down pension debt. The question again that his critics are saying is, has it been at the expense of other programs that we value, such as municipal aid, healthcare, education. It's a debate about finding the balance.
WSHU: And we'll know which way the voters will go in just a few days in the Democratic primary.
KP: That's a fair point. I think you're going to see whoever emerges from that primary, though, continue to have to discuss the guardrails with Senator Fazio for the rest of the campaign.
WSHU: Wow! Well, thanks a lot for going into the archives and reminding us of how we got to where we are today. Thanks so much, Keith.
