While legislative leaders remain hopeful that lawmakers will adopt a new state budget later this week, there’s a growing recognition at the Capitol that it will be an unfinished document — with more loose ends even than past budgets.

Painful spending choices built into the second year of the biennial package involving higher education and transportation have many worried.

More importantly, while progressives have been warning that a defective spending cap system has government services in crisis, moderates and conservatives are pushing harder in the other direction, demanding more cost-cutting reforms than ever before.

Has the spending cap driven Connecticut’s budget into crisis?

A state budget crisis, driven in part by the spending cap, “is on the horizon and not too far distant,” said Senate President Pro Tem Martin. M. Looney, D-New Haven. “We have current needs and demands that are not readily accommodated.”

Sen. Gary Winfield, another progressive Democrat from New Haven, was more blunt about the cap and other oft-hailed “fiscal guardrails” that have constrained spending considerably since 2017.

“Guardrails are supposed to keep people from going overboard,” he wrote in a Facebook post last week. “A lot of folks in the water right now though.”

The crisis, Looney says, is an inflexible cap system that can respond neither to unusual events — a once-in-a-century pandemic or a 40-year-high in the national inflation rate — nor to long-term trends coming to a head.

State education, health care and social service systems were underfunded gradually for years or even decades as state government struggled with sluggish economic growth and budget deficits for much of the 2000s and 2010s.

The cap tried to keep spending growth in line with the growth in personal income or inflation. But what has happened, historically, is a few cost drivers — employee wages and benefits, required contributions to public sector pensions — grow faster than personal income and inflation. Everything else, like social services, health care and aid to towns, is lucky if it stays flat year over year.

Factor in the recent economic damage caused by the pandemic and by surging inflation, and too many core programs need a dramatic infusion of cash at once.

Public colleges and universities top that list for many. Others point to the nonprofit network that delivers the bulk of state-sponsored social services to the disabled, abused children, patients struggling with mental illness and addiction, and prison inmates preparing to re-enter society. Striking group home workers and their nonprofit employers have become allies, attending each other’s rallies and blaming Lamont and other fiscal moderates and conservatives in the legislature.

State agency staffing is at its lowest point in decades, while overtime expenses are on the rise. And still others say local education and child care aren’t far behind on the crisis meter.

Looney insists the impending budget crisis would have arrived two years ago had Congress not awarded Connecticut $2.8 billion in pandemic relief through the American Rescue Plan Act.

Those funds, which will be exhausted by 2025, have allowed Gov. Ned Lamont and legislators to cover far more than emergency expenses created by the coronavirus pandemic. They’ve also pumped hundreds of millions of dollars — often utilizing funds outside of spending cap — into existing core programs.

And while the cap — according to critics — is strangling vital programs, state government is setting surplus records, achieving windfalls that were unheard of even five years ago.

Since 2018, Connecticut has amassed a $3.3 billion rainy day fund, the legal maximum equal to 15% of the General Fund.

More importantly, it’s used another $5.8 billion in surpluses to pay down pension debt in the past three years.

Last June, Connecticut closed the 2021-22 fiscal year an unprecedented $4.3 billion in the black, a surplus equal to one-fifth of the General Fund. This year it’s on pace for a $2.95 billion cushion, which would be the second-largest in state history.

Governor, House speaker say things aren’t as bad as critics contend

Lamont and House Speaker Matt Ritter, D-Hartford, have tried to urge lawmakers to keep perspective.

Connecticut entered this year with more than $88 billion in unfunded pension and retiree health care obligations and bonded debt — making it one of the most indebted states, per capita, in the nation.

Those burdens, created by inadequate savings over several generations — from the late 1930s until 2010 — created a legacy of debt projected to haunt Connecticut well into the 2040s.

The next state budget is expected to feature one of the largest state tax cuts in Connecticut history, including the first income tax rate reduction since the mid-1990s. That’s a very different narrative, Lamont noted recently, compared to the prior decade.

In the decade immediately following the recession of 2008 and 2009, state finances were plagued with frequent deficits and major tax hikes in 2009, 2011 and 2015.

“It was always ‘How much more do we have to cut? How much taxes do we have to raise?’ And often [legislators] had to come back halfway through the year and do it all over again,” Lamont said. “We’ve come a long way.”

Editor’s note: More on this topic can be found at https://ctmirror.org/2023/05/30/ct-budget-spending-cap-legislature/.

ctmirror.org.