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    Thursday, April 18, 2024

    ‘Fiscal guardrails’ may need a refresh

    The year 2017 changed the money math for Connecticut. It wasn’t tax reform nor even a tax cut, but lawmakers capitalized on an even split in the Senate to craft new curbs for the other side of the budget, state spending. The House and Governor Dannel Malloy went along, and a new system of governmental self-control went into effect.

    Seven years ago the General Assembly self-disciplined its propensity to spend rather than save. Mounting debt from inadequately funded pension obligations was holding each annual budget hostage. Financial analysts were penalizing the state with unfavorable interest rates.

    The 2017 changes, now dubbed the “fiscal guardrails,” remain in effect. As summed up by The Connecticut Mirror; these are: a revised spending cap, expanded to cover certain spending categories; new limits on issuing bonds; a revenue cap that requires the state to budget at least 1.25% of the General Fund as a hedge against unforeseen costs; and a volatility adjustment, which saves part of quarterly income tax and business tax filings for a rainy day.

    The provisions received unanimous re-approval in last year’s legislative session for their dramatic success. Those formulas, in combination with some excellent years for the portfolios of quarterly taxpayers and the state’s own investments, have added up to $3.3 billion for the rainy day fund while making $7.7 billion in debt-lowering pension fund payments.

    But it is not 2017 anymore. Inflation has raised the cost of living, including food prices and an alarming gap between heating costs and people’s ability to pay; a shortage of affordable housing has increased the numbers of people who are homeless. ARPA funds — the federal COVID-era relief program — could help, but they must be used or conveyed to eligible entities by year’s end or they will elapse.

    A fraction of the state surplus and a commitment of available ARPA funds could painlessly address these needs but for the guardrails. As currently formulated, the rules prevent raising spending beyond exemptions and adjustments already in place.

    The $26.1 billion proposed budget of Gov. Ned Lamont sticks with the existing limitations. Some legislators, including the Appropriations Committee co-chairs, state Sen. Cathy Osten of Sprague and state Rep. Toni Walker of New Haven, are questioning whether the administration is missing obvious need to adapt or even a short-term remedy, the use of ARPA money.

    If the Lamont administration continues to stand by the current rationing of assistance under the guardrails, legislative leadership needs to exert its constitutional role as holder of the purse strings. Tweaking a complex system is a giant pain, politically and fiscally, particularly when much good is still coming from it. But the picture of a cushy state surplus stacked up against urgent, basic needs looks bad because it is bad.

    A telling precedent dating back to 2007 shows how deeply inertia is embedded in state fiscal policy. Connecticut is still paying physicians the Medicaid reimbursement rates set long before medical costs accelerated to their current levels. Having set the rates at 57.5% of what Medicare was paying in 2007, the state left it at that. Most “peer” states have moved well beyond Connecticut.

    The imbalance between what things cost and what the state will spend on them crops up everywhere that regular people live and work. Last June, Connecticut’s largest health care workers union went on strike for three weeks against six nonprofit agencies that care for people with developmental disabilities, including Whole Life, Inc. of New London.

    Agencies employ thousands of health care workers under contracts with the state. Connecticut saves money on state employee benefits by outsourcing jobs to the nonprofits. The nonprofits can ask for rate increases but, unlike state employee bargaining unions, they lack the clout to demand them.

    Last summer management — the CT Community Nonprofit Alliance, representing about 300 agencies, joined with labor — healthcare workers — to negotiate with the state. Citing inflation’s deep damage since 2007, they said their industry has in effect lost about $480 million in state payments during that time.

    The workers make around $20 an hour after minimal increases for the last two decades. Their negotiators sought a 9% increase for the current fiscal year and another 7% in the budget now under review. They got 2.5 % for each year. For state employees, the governor agreed to a 4.5% increase.

    Gian-Carl Casa, a state budget administrator in the Malloy administration who now heads the nonprofit alliance, said it plainly: “The state of Connecticut is no longer in (a) state of fiscal crisis, but nonprofits are.”

    There is much more pension debt to be paid off, and the state needs its guardrails for that. But other obligations cannot wait forever. Connecticut can — must — have it both ways.

    Lisa McGinley is a member of The Day Editorial Board.

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