Submitted by Tina Courpas
In a state known for almost constant tax increases, most of us finally enjoyed a slight tax cut in Connecticut this year. And while that is welcome news, we must remember exactly what made that possible. The answer is seven years back.
In 2017, a year when Republican representation in the state legislature peaked at 48% of all seats, the state’s “Fiscal Guardrails” were put in place at the insistence of those Republican legislators. Republicans, including current House Minority leader Vincent Candelora, dug their heels in to protect taxpayers. After many months of debate, most of the minority’s budget recommendations passed in a bipartisan manner. Seven years into Connecticut’s fiscal discipline program, it’s working.
Last year, the General Assembly voted to keep those fiscal guardrails in place. Kudos to all for that. But while it may earn legislators constituent soundbite points to take one vote and say you “support guardrails”, the commitment has to be real. Unfortunately, the pressure is on this legislative season to violate the guardrails.
“Fiscal guardrails” are a stool supported by three legs: 1) the Spending Cap, 2) the Revenue Cap, and 3) the Volatility Cap. The three legs, working together, require that the budget is balanced, ensure that spending does not outpace citizens’ incomes, and smooth the volatility created by revenues from Wall Street earnings. This translates directly into lower taxes for all of us, both now and in the future.
The Spending Cap requires that spending does not exceed citizens’ income growth or the rate of inflation, whichever is higher. Jeffrey Beckham, the budget director of the Office of Policy and Management (OPM) said several weeks ago, “The spending cap, for me, is the main event.” (1)
The Revenue Cap limits government spending to 98.75% of projected tax revenues. This balances the state’s approximately $25 billion annual budget. The OPM presented its budget to the 2024 legislative session, including increases for education and other programs while adhering to the guardrails. The OPM has already gotten flak that its budget is too austere, i.e., pressure against this guardrail.
The Volatility Cap is the most controversial of the three legs but has also packed the biggest punch in dollar terms. Because almost 1/3 of Connecticut’s tax revenues come from Wall Street-driven investment income, our revenues can fluctuate widely, creating budget instability. The legislature dealt with this in 2017 by establishing a Volatility Cap of $3.15 billion (adjusts annually). Any revenues from taxes on investment and certain business income above that threshold bypass the budget entirely and go directly into the state’s Budget Reserve or “rainy day” fund. This protects us from years when those revenues are less than the $3.15 billion cap. The Volatility Cap has been the single biggest contributor to raising the Reserve Fund from approximately $212 million in 2017 to $3.3 billion today and allowing the state to pay down $7.7 billion of pension debt.
These three legs have put us in a very different financial position than 2017. Between 2010 and 2017, the budget ran a deficit five times and citizens suffered from the two largest tax increases in state history. By contrast, we have been balanced every year since, and taxpayers got major tax reliefs starting on Jan. 1 of this year.
This year, the guardrails are under pressure, potentially a victim of their own success. A robust balance of $3.3 billion in the state’s Budget Reserve Fund has created the temptation to avoid hard choices by simply dipping into it today. House Speaker Matt Ritter (D-Hartford) said seven months ago of the guardrails, “If you become too much of a straitjacket … then I worry about [fiscal guardrails] in the long term. Be careful – because they will go away in five years if you do that.” (2) This statement by the most senior Democratic leader in the legislature is unsettling to all who believe we are on the right path.
It would take a vote of 3/5 (60%) of the General Assembly and the Governor’s approval to overturn the guardrails. Right now, Democrats comprise 65% of the total General Assembly, sufficient to overturn them. But more likely is the slow chipping away of them by Democratic legislators whether through tweaking the three caps or spending what we are now saving. Adherence to the guardrails is a top legislative priority of state Republicans. (3) In fact, the Lamont Administration and the Republican caucus are aligned in their defense of the guardrails, a positive and productive show of bipartisanship.
You cannot say you support the guardrails on the one hand and then propose spending programs which violate them. A unique moment of Republican-led bipartisanship put Connecticut on a better economic path seven years ago. Stay the course; it’s working.
Sources for this article:
(1) https://ctmirror.org/2024/01/30/ct-fiscal-guardrails-legislative-session/
(2) https://ctmirror.org/2023/06/14/ct-state-budget-2023-spending-cap-ned-lamont/
Excellent additional sources for citizens:
2) https://www.nationalreview.com/2024/02/government-unions-target-fiscal-sanity-in-connecticut/
Tina Courpas is an attorney, mother of four, and citizen of the 149th District in Greenwich.