Keep the cap on volatility
It's so, so tempting, in the wake of surging quarterly income tax returns the likes of which Connecticut hasn't seen in years, to put some of that roughly $1 billion to use.
Only six months have gone by, however, since the General Assembly passed a "volatility cap" to slap its own hand when quarterly receipts amounting to more than $3.115 billion per year appear like the answer to a budget balancer's prayers.
The good news is that the state is taking in significantly more revenue than predicted. The other good news, although it may not feel that way just now, is that it cannot dip into the extra without dumping or circumventing the volatility cap.
Most of the legislative leadership is holding the line for now, with Speaker of the House Joe Aresimowicz, a Democrat, being the sole voice saying out loud that he expects to see spending proposals for "strategic" programs to be financed from the overage.
The Speaker was not wrong to predict that as the Appropriations Committee party caucuses were about to come out with their spending proposals for the second year of the biennial budget. On Friday, committee Democrats advocated for funding the Medicare Savings Plan to cover 134,000 more senior citizens and restoring about $220 million to towns, school systems and magnet schools. among other spending.
Republicans said Friday they would balance the budget. They would "adhere to the principles" of the volatility cap and fully fund the Special Transportation Fund. They, too, would restore funding for the Medicare program.
It's the task of Appropriations to recommend where to spend. The mission of Finance, Revenue and Bonding is to identify realistic revenue streams. It will be on the members of that committee, as well as legislative leaders, not to set their sights on the newfound quarterly revenues.
The volatility cap got its name in recognition of the unpredictability of the quarterly income tax receipts, which include taxes on capital gains and can be heavily influenced by federal tax policy. Legislators rightly recognized the revenue vacillations and their own when they put unexpected funds behind a wall.
The cap buys time for cool-headed decision making by leaving the funds unallocated until the state comptroller issues his final report a few months after the end of the fiscal year June 30. Used as intended, the money then goes into the Budget Reserve Fund — the rainy day fund.
In recent years Connecticut's finances have had many rainy days. Ben Barnes, secretary of the state Office of Policy and Management, reported Friday in a letter to Comptroller Kevin Lembo that transferring the tax revenue funds in question to budget reserves will raise that fund to $1.26 billion, or 6.7 percent of General Fund expenditures. That will still be less than at the start of the recession, he reported, and far less than the 15 percent required by law.
The revenue windfall is a prime example of volatility. Much of it may come from people trying to get the most benefit out of paying their state taxes in advance of the new federal tax law, which limits the deduction for state and local taxes starting in 2019.
A decision not to use the funds won't be easy. After cutting municipal and education aid and some health care and social services, and leaving state workforce vacancies unfilled, the administration moved on to suspending $4.3 billion in capital projects, including highway infrastructure. Many of those cuts would stand without a new infusion of funds.
There's no ignoring that even a windfall won't eliminate the state employee pension obligations, which are only going to grow. If the state could win its own lottery, it would not cover those.
Nothing would shore up the reputation of the legislature and its members like sticking to the plan and following their own fiscal wisdom. Nothing would hurt them more on Election Day than waffling now.
Build a tight budget that overcomes the existing deficit — variously forecast Friday as being $321.5 million to $363.5 million — without touching the surprise revenue. Use it as meant, to build the reserve funds, and begin the next biennial budget in better shape.
The Day editorial board meets regularly with political, business and community leaders and convenes weekly to formulate editorial viewpoints. It is composed of President and Publisher Tim Dwyer, Editorial Page Editor Paul Choiniere, retired Day editor Lisa McGinley, Managing Editor Tim Cotter and Staff Writer Julia Bergman. However, only the publisher and editorial page editor are responsible for developing the editorial opinions. The board operates independently from the Day newsroom.
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