Connecticut lawmakers on Thursday set parameters for the coming state budget negotiations by voting to approve a fast-tracked bill that extends certain fiscal guardrails for five years rather than a 10-year period sought by the governor.
Democratic House leaders detailed the bipartisan agreement following talks with Gov. Ned Lamont’s administration after the governor’s Wednesday budget address. The bill will extend for five years a promise to state bond holders that Connecticut budgets will continue to be constrained by volatility, spending and revenue caps that have been in place since 2017.
Although an earlier version of the agreement would have extended those constraints for 10 years, the bill expected to be passed Wednesday allows the legislature to adopt a resolution with a simple majority if lawmakers wish to discontinue the guardrails after five years. Without that action, the constraints will continue.
“On its face, 10 years from now is a long time,” House Speaker Matt Ritter said of the change. “We had people who made the argument that five years worked really well the first time, why would you change that?”
Both the House and Senate unanimously approved the bill during back to back sessions. The legislation included a handful of other policies deemed time-sensitive enough to bypass the traditional committee process, including an initiative to fund free school meals until this summer and a clarification of a 2021 update of the state bottle bill.
On the fiscal side, the bill also expands the state rainy day fund. At the moment, the fund is flush with $3.3 billion or 15% of state spending. The bill extends the fund so it can hold up to 18% of state expenditures.
Rep. Maria Horn, a Salisbury Democrat who co-chairs the legislature’s Finance Committee, said excess revenues to fund that additional 3% will be split equally between the rainy day fund and paying down unfunded pension liabilities.
“There’s a very strong feeling that the rainy day fund is there to protect us in a moment where we do not want to be slashing services,” Horn said. “Fifteen percent is great but 18% is better.”
Despite its shorter duration, the deal still has the support of Republican lawmakers. During a separate press conference, House Minority Leader Vincent Candelora said he was largely unconcerned whether the agreement lasted for five or 10 years.
“Ultimately our caucus is focused on the functioning of those caps and making sure that the spirit continues to give us fiscal health,” Candelora said.
By extending the so called “bond covenant,” Democrats, who enjoy overwhelming majorities in the legislature, are voluntarily committing to fiscal constraints negotiated with Republicans in 2017, when the legislature was more evenly divided.
On Thursday, Ritter said Lamont’s insistence on continuing those guardrails factored into the decision. But Ritter also said that bipartisan policies had staying power. Other Democratic leaders said the constraints had proven beneficial to the state’s finances. Budget surpluses have enabled Connecticut to make nearly $6 billion in unscheduled payments on its unfunded pension liabilities over the last several years.
“The proof is in the pudding,” House Majority Leader Jason Rojas said. “People saw what happened. I don’t know that people anticipated or at that time thought about the impact on long term liabilities or the revenue that it would otherwise free up.”
Rep. Toni Walker, a New Haven Democrat who co-chairs the Appropriations Committee, said cementing the fiscal constraints early also helped her budgetary spending panel manage the expectations of competing interest groups.
“It helps — some of the bills that are coming out that have enormous price tags — it brings them into a reality and this is part of the process that we all understand over the next biennium,” Walker said, “what are our basic constraints, what are the guard rails, so that everybody understands that this a Connecticut for all and we have to make sure we balance it.”
“I think it’s important, before we engage in budget negotiations, we need to know what our parameters are,” he said.
While there may have been general consensus among the General Assembly’s leadership, the continuation of the bond covenant drew opposition this week from progressive advocates who argued Connecticut should not handicap its ability to spend money on combating inequity.
In a Wednesday statement, before lawmakers shortened the duration of the covenant, Sarah Ganong, state director of the Working Families Party called the plan “irresponsible” and “dangerously undemocratic.”
On Thursday, Puya Gerami, director of Recovery For All, thanked lawmakers for reducing the duration.
“While Recovery For All still remains vehemently opposed to the bond lock budget mechanism, we are glad to see that Legislative leaders have made necessary changes to shorten the long-term impact of the bond lock,” Gerami said.
Before the Senate passed the bill later that day, Senate President Martin Looney said lawmakers would continue to look for ways to “catch up” for years of underfunding some services.
“We are in a position to begin to make up for some of the areas where we fell far behind in support for social services in this state during the years of financial crisis, but still doing it in a way that is responsible,” Looney said.
Ritter said he expected budgetary disagreements going forward but did not expect the parameters to change based on Lamont’s insistence.
“You have a governor that, look, he was re-elected with [56%] of the vote,” Ritter said. “So if you think you’re going to get a different deal in April or May? This is probably what you’re going to get.”
Lamont released a statement Thursday evening praising the legislature for extending the fiscal guard rails for what he said would be another decade despite the potential opt-out provision included by lawmakers.
“Fiscal stability is the foundation to inclusive growth,” the governor said. “I applaud the legislature for extending these guardrails for another ten years, and I am confident that their continued success will discourage any modifications in 2028.”