HARTFORD, CT — It’s been 25 years since the public first asked Connecticut lawmakers to adopt a constitutional spending cap.
But the debate over the years hasn’t changed, according to former lawmaker turned business industry lobbyist Brian Flaherty.
“The discussion of the different exemptions over time are the same discussions that occurred in 1991 before it was passed by the legislature and put before the voters in 1992,” Flaherty, senior vice president of public policy for the Connecticut Business and Industry Association told the Appropriations Committee Monday.
In 1992, just one year after it implemented the income tax, more than 80 percent of the voters asked the Connecticut General Assembly to adopt a working definition of the spending cap. Taxpayers were concerned it would spend too much of this new revenue stream so they asked it to come up with a calculation to limit that spending.
Connecticut’s Constitution requires the General Assembly to define by law “increase in personal income,” “increase in inflation,” and “general budget expenditures.” These definitions must be passed by a vote of three-fifths in each house of the General Assembly.
A commission created to make a recommendation to the General Assembly was unable to reach consensus on a working definition of what expenditures should be included under the cap. The 24-member commission struggled with deciding whether to include the state’s unfunded pension liability as one of those expenditures.
Peter Gioia, a vice president and economist with CBIA, said the architects of the spending cap in 1992 might not have specifically said unfunded pension liabilities should be covered by the cap, but that’s what they intended.
“They wanted to the General Assembly to deal with it before it became a crisis,” Gioia said.
Democratic Gov. Dannel P. Malloy’s budget includes a proposal to exempt payments for unfunded pension liabilities in the state’s retirement systems from the spending cap.
More than a dozen Republican proposals debated Monday by the Appropriations Committee would include payments to the state’s retirement systems under the spending cap.
Rep. Chris Davis, R-East Windsor, said it’s important to recognize that payments to state pensions are a major component of state spending. Currently, the state is spending about $1.9 billion on pensions.
“I think it’s very important that we consider that under the state spending cap because it is part of the state’s spending,” Davis said Monday during his testimony. “It has to be paid for by something.”
In the early years, the undefined spending cap the General Assembly was working under did act as a check on spending. However, there were eight times when past governors and legislatures voted to exceed the cap.
Over the years, legislatures worked to remove spending from under the cap. In 2015, it moved nearly $2 billion in long-term pension and retiree health costs out from under the cap.
Brian Anderson, legislative liaison for the AFSCME Council 4, said the spending cap has caused Connecticut to leave federal dollars on the table. However, he said it’s unclear how much money the state has been unable to collect because that’s not information the state is tracking.
“People in our state would be served better if the cap was eliminated,” Anderson said. “The cap has lead to the erosion of state services for some of the neediest citizens.”
He said Connecticut doesn’t have a spending problem, “it has a revenue problem.” He argued increasing taxes on the wealthiest, closing the carried interest loophole, and ending corporate giveaways would improve the economy faster than a spending cap.
Anderson said including the unfunded portion of state pensions makes an “unworkable cap even more unworkable.” He said the state failed to fund the pensions for so long that the unfunded portion is so large that it would force the state to reduce its general budget spending by too much.
Who cares?
Flaherty said discussion about implementing a spending cap instills confidence in the business community.
Businesses’ trust in state government is closely linked to the state government’s promise to keep spending in check to the growth in personal income, Flaherty said.
He said the spending cap and creating a viable skilled workforce are the two most talked about topics by the business community.
Jason Howey, president of OKAY Industries in New Britain, said he’s concerned that if the legislature doesn’t adopt a spending cap that his company and employees “will suffer through tax increases.”
He said by defining the spending that falls under the cap it will give businesses confidence to create more jobs and invest in Connecticut.
Passing a spending cap would also inspired companies to relocate to Connecticut, Howey said.
“It sends a message to the rest of the world that Connecticut is going to get its house in order and we’re here to compete,” Howey said.