HARTFORD, CT — The bean counters at the state Capitol are telling lawmakers that income tax revenues are coming in 46 percent better than initially projected, but it’s unlikely the two parties will agree on exactly what to do with it.
With deficits weighing on their minds, lawmakers were told Thursday that the total amount of money being transferred to the Rainy Day Fund under the new budget rules is roughly $915 million. That’s on top of the $212 million that’s already there.
That would bring the state’s reserve fund up to $1.2 billion. That’s enough to erase the $200 million deficit in fiscal year 2018 and the projected $165 million deficit in 2019. But under the new budget rules both parties adopted last fall they won’t be able to use all of it.
Section 704 of the bipartisan budget, referred to as the “volatility cap” provision, requires that any revenue from estimated and final income tax payments in excess of $3.15 billion be diverted to the Rainy Day Fund. A large amount of the money that was headed into the fund is attributed to one-time payments from the repatriation of hedge fund money under federal tax laws.
However, there’s still more revenue headed to the Rainy Day Fund than lawmakers initially anticipated.
Lawmakers, who have consistently postponed talks about deficit mitigation, could vote to use some of that newly found revenue on long-term debt or other investments.
But Republicans are being stricter about the limits on how the money should be used.
House Minority Leader Themis Klarides, R-Derby, said the new volatility cap, which is applied to part of the income tax, prevents them from spending money that shouldn’t be spent.
“I do believe it should be used in part to help with our unfunded liabilities,” Klarides said. “I do believe a good amount should be put in the Rainy Day Fund.”
She said she doesn’t support using that money for ongoing expenses.
Senate Republican President Len Fasano, R-North Haven, said the more money they use to pay off their unfunded liabilities, the more money it frees up to spend in operating funds.
He said they shouldn’t be using money they can’t count on next year for ongoing expenses because they’ll just wind up in a brutal cycle of surpluses and deficits.
Fasano said he’s okay with using some of the unexpected revenue to pay off long-term debt. He said making those payments will improve the credit rating, drive down the actuarially required amounts, and free up more operating funds in the process.
Republicans and Democrats plan to unveil their spending proposals Friday during the Appropriations Committee meeting. It’s still unclear whether either plan will have enough votes to pass.
Klarides said she thinks they should have a vote. She said last year was the first year they didn’t vote on a spending package and it took them four months after they adjourned to pass a budget.
She said failing to vote on a spending package can’t become the new normal.
House Speaker Joe Aresimowicz, D-Berlin, said he didn’t necessarily believe they needed to vote.
As far as what’s in a package, Republicans, according to sources, will look to use some of the revenue to pay down unfunded pension liabilities in both the teacher and state employee pension funds.
Some of the things Democrats and Republicans have been able to agree upon, like restoring the funding for the Medicaid Savings Program, will also be included in a Republican spending plan.
Democrats have signaled that they’re willing to restore funding for a number of programs that were cut by Democratic Gov. Dannel P. Malloy or in the bipartisan budget as part of their spending package.
Democrats, according to a press release, plan to restore a total of $114.9 million in aid to municipalities, including an estimated $33.1 million in town aid, $63 million in ECS, and $18.5 million for magnet schools.
It also retains the car tax mill rate at 45, but uses current year mill rates and increases funding for retired teachers health care. And it increases assistance in the Department of Developmental Services for emergency placements and employment and day services, and funds the Medicaid Savings Program for 134,000 elderly and disabled.
The revenue picture could change before April 30, but Aresimowicz said the proposals expected to be debated Friday will be a good starting point for leadership to have their discussions.
The Appropriations Committee is expected to convene at 11 a.m. today.