Tough fiscal choices shift to election, 2025

Knowing there is no consensus in the state legislature on whether to adjust fiscal restraints first engineered into the budgetary process seven years ago, majority leaders have said they intend to work within the confines of the $26 billion budget already in place for fiscal year 2024-2025, which begins July 1.

Given that the leadership wants to find money for some needs, without formally reopening the spending plan, the approach will no doubt require some budgetary sleight of hand. This is disappointing, but unsurprising. Working within the existing spending plan avoids a budgetary battle. Progressive Democrats argue that because of the fiscal straitjacket imposed by the 2017 rules, too many social needs are going unmet even as the state has seen record surpluses. But moderate Democrats, and certainly Republicans, are in no mood to take down the so-called “fiscal guardrails.”

The Connecticut legislature budgets in twoyear cycles. In 2023 it approved budgets for the current fiscal year and for the coming fiscal year. The odd-year sessions are long sessions, scheduled for five months, while even-year sessions are set for three months. Typically, the legislature reopens and approves significant changes in the second year of the two-year budget plan to reflect updated needs and revenue expectations. But not this year, if the Democratic leadership has its way.

The Democratic majority leaders — House Speaker Matt Ritter and Senate President Pro Tem Martin Looney — recently told The Connecticut Mirror they want to invest more in higher education. The University of Connecticut is seeking $120 million and the state universities and community colleges $63 million to avoid program cuts and more tuition hikes. The Democratic leaders also point to gaps in spending needs for social services and health care.

To find the money without reopening the budget will mean shifting funds, tapping into any projected surplus, accessing unspent pandemic relief money, and probably accepting rosy revenue projections. It will be up to Democratic Gov. Ned Lamont, who has lauded the spending discipline imposed by the fiscal guardrails, to ensure the creative budgeting doesn’t get out of hand. He must sign off on any deal.

In 2017, following years of lurching from one fiscal crisis to another, the legislature imposed on itself rules to build a modest projected surplus into the budget, avoid spending sprees when tax revenues spike due to market volatility, and live within the state constitutional spending cap.

The fiscal guardrails produced extraordinary results that include a string of large budget surpluses, the accumulation of a healthy budget reserve for the state, and the ability to make large contributions that have significantly improved the outlook for the state’s underfunded pension system.

But it is also true that needs are going unmet. Medicaid reimbursement rates have stagnated and no longer adequately meet the cost of health care or of nursing home care. Nonprofit agencies that contract with the state to provide human services for children, the disabled, and that address mental illness, substance abuse and other needs are grossly underfunded resulting in inadequate pay and benefits for frontline workers.

Fiscal and tax policy should be front and center in this year’s state Senate and House elections.

Candidates should be pressed on whether they want to strictly adhere to the existing fiscal guardrails. Or do they want to adjust them and, if so, how? Or do they advocate repeal of the 2017 fiscal rules?

A compromise would provide the best approach. Adjust the constraints so that more revenue remains available to address current needs, while still imposing fiscal discipline. Abandoning the fiscal guardrails would invite a return to the bad old days of perpetual fiscal problems.

In addition to the spending part of the budget, candidates should spell out their approach to the revenue side, meaning taxes.

An analysis by the state Department of Revenue Services showed an upside-down system. Connecticut’s lowest-earning 10% spend almost 40% of income on state and municipal taxes, the analysis found, while the highest earners pay a fraction of that, in percentage terms.

There will be no avoiding tough fiscal decisions in 2025.

The Day editorial board meets with political, business and community leaders to formulate editorial viewpoints. It is composed of President and Publisher Timothy Dwyer, Executive Editor Izaskun Larrañeta, Owen Poole, copy editor, and Lisa McGinley, retired deputy managing editor. The board operates independently from The Day newsroom.