CT savings program brings further surplus of over one billion dollars

The controversial program, designed to prevent lawmakers from spending “volatile” tax revenues, raises large sums of money year after year — a contradiction that continues to frustrate those seeking to strengthen its core programs.

Governor Ned Lamont's administration recently projected that Connecticut will end its fiscal year on June 30 with a balance of $1.35 billion. That includes a $225 million operating surplus and more than $1.1 billion in tax revenues that are too uncertain to spend.

Those figures, which will only become official after an audit by the comptroller's office in September, would mean the volatility adjustment has taken in at least $950 million for the sixth time in its seven-year history. In 2020, when the coronavirus outbreak threw state finances into chaos, it still managed to rake in $530 million.

And while analysts recently predicted that the system would continue to rake in between $800 billion and $1.2 billion each year through 2028, critics accuse the education, welfare, and health care systems of losing hundreds of millions by falsely characterizing those dollars as volatile.

Connecticut's fiscal contradiction – that the state has reliable but fluctuating revenues – can no longer be ignored, said Rep. Josh Elliott (D-Hamden), founder of the 40-member House Tax Equity Caucus.

“The volatile revenues we generate are not [all] really volatile,” he added. “We are completely ignoring the fact that there is a need right now.”

A program that was supposed to bring in a lot of money in some years – and nothing in others – has now raised an average of $1.4 billion a year since its inception in 2017-18. That average exceeds 6% of the next state budget's total general fund.

And if analysts' latest projections are correct, the volatility adjustment will generate hundreds of millions of dollars annually for its first eleven years – without failing once – and will generate an average of $1.2 billion per year between 2018 and 2028.

No lawmaker has proposed eliminating the program, but progressives say it could be scaled back by redirecting some of the funding to core programs while ensuring healthy annual surpluses.

Senator Cathy Osten, Democrat of Sprague, co-chair of the Budget Committee, said the austerity program passed in 2017 to end a series of budget deficits “changed the trajectory of Connecticut’s finances. But we have [other] Commitments that need to be taken into account. … We need to be realistic about our spending as we move forward.”

The road ahead for Lamont and his Democratic colleagues in the House majority caucus is full of challenges.

The governor is reluctant to change the austerity program at all and frequently refers to it and other budget controls as the state's “fiscal guardrails.”

His budget office recently estimated that the $1.35 billion in unexpected revenue from the current fiscal year will be used to boost the state's record-breaking emergency fund from $3.3 billion to as much as $4 billion – an unprecedented 17.7 percent of annual operating expenses – and to pay down another $622 million in state pension debt.

If true, Connecticut will have poured $8.3 billion in surplus into its pensions since 2020. The state began the year with over $37 billion in unfunded pension liabilities—an enormous mess created by over 70 years of inadequate savings between 1939 and 2010.

“Connecticut's budget outlook remains strong,” said Chris Collibee, Lamont's budget spokesman, noting that the state has offered large tax cuts for 2022 and 2023 while increasing funding for core programs, although not as much as advocates wanted.

“Wall Street has taken note, too,” he said, noting that two credit rating agencies raised their ratings for Connecticut last month, a move that sometimes leads to the ability to borrow at lower interest rates.

But many of Lamont's colleagues in Parliament argue that the performance of core programs, which were underperformed by budget deficits in the 2010s, is now deteriorating rapidly – and that government payments have not increased in line with inflation for years.

This spring, the two sides avoided a dispute by using more than $700 million in temporary funds — expiring federal pandemic relief grants and portions of the last two states' budget surpluses — to prop up public colleges, social services and health centers.

But when officials return to the Capitol next January and begin work on the state's next biennial budget, they will have to either replace those funds or cut programs.

Rep. Jillian Gilchrest (D-West Hartford), co-chair of the Human Services Committee, said Connecticut faces major challenges in education, housing, food insecurity and access to health care, and a comprehensive response cannot be delayed.

“I don't think we can have the other necessary conversations until we have discussed the guard rails,” she said.

Elliott added that Democrats, who have controlled the state's House of Representatives since 1987 and the Senate since 1997, are risking their vote count by ignoring growing inequalities in Connecticut.

“People vote for Democrats primarily because of the investments they plan to make in education, housing and infrastructure,” he said, adding that while it is important to pay off Connecticut's legacy debt, “to maintain our majorities, we must also ensure that our constituents are served here and now.”

The State Employees Bargaining Agent Coalition, which represents nearly all major unions in state government, issued a statement this week calling for a reversal of Connecticut's aggressive austerity efforts.

“Our state faces major, pressing problems: skyrocketing housing and health care costs, underfunded schools from K-12 through K-15, and a woefully inadequate child care system, to name a few,” said Travis Woodward, president of CSEA-SEIU Local 2001. “The Governor and General Assembly must acknowledge that the 'fiscal guardrails' are making things worse for Connecticut families. Instead of diverting funds into an overflowing surplus, we must prioritize investing in our infrastructure, education, health care, and other essential services to ensure a prosperous and equitable future for all.”

Connecticut for All, a coalition of more than 60 labor, religious and other civic groups, also called for a reduction in government cuts and a greater focus on crisis programs.

“While Governor Lamont chooses to irresponsibly divert taxpayer dollars from critical investments to amass an even larger surplus, schools across the state are closing due to underfunding, workers are struggling to survive and patients are choosing to delay treatment in the face of skyrocketing health care costs,” said Norma Martinez-HoSang, the coalition's executive director. “We must invest these funds to address the deep racial, gender and economic inequalities in our state before it is too late to make a difference this generation.”

Collibee, however, said such discussions about the next budget were premature.

The governor's next budget proposal will be “based on fiscal planning – in other words, the ability of citizens to pay,” he said. “If we want to continue to create jobs in our state and ensure that our children and seniors live in our state, our budget must be sustainable. The administration is willing to listen to common sense ideas from all parties on how best to move Connecticut forward.”

When it comes to maintaining the austerity program in its current form, Lamont will have allies among Republican lawmakers.

“If we go back to that practice … and not take responsibility in managing payments on huge debts,” Senator Eric Berthel of Watertown, the ranking Republican senator on the Budget Committee, told the Connecticut Mirror in early June, “then this will evolve into something much bigger.”

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CT savings program brings further surplus of over one billion dollars

Anna Harden

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