Can the CT legislature adjust the spending cap?

Legislators might have more legal flexibility than anticipated to modify a key state budget control and boost spending for core programs.

But given that other budget controls — commonly called “fiscal guardrails” — still pose legal problems and that political obstacles remain daunting, the prospect of adding major funding remains very uncertain.

House Speaker Matt Ritter, D-Hartford, said last week he believes the legislature can adjust the revenue cap — a mechanism that mandates a large built-in operating surplus — with a simple majority vote.

Until now, most state officials have said this guardrail couldn’t be adjusted without a declaration of fiscal emergency by Gov. Ned Lamont and a 60% vote of approval in both the House and Senate.

And given Lamont’s and minority Republican lawmakers’ adamant support for the guardrails’ current settings, the odds of successfully making adjustments through that two-step process seem slim at best.

But the speaker said his reading of Public Act 23-1, the measure by which legislators 12 months ago renewed all guardrails through at least mid-2028, makes an interesting distinction.

Normally, that two-step process is needed to make any changes to caps on spending and bond issuances, a third program designed to save tax receipts from volatile sources, or the revenue cap.

But Section 16 of that act sets slightly different conditions when Connecticut is about to enter the second year of its biennial budgeting process, as it is the case now.

In 2023, legislators adopted a biennial package that included a spending-and-revenue plan for the fiscal year that began last July, and a preliminary second plan for the budget year that starts this July 1.

And in the regular 2024 session, which opened last Wednesday, Lamont and legislators will consider adjustments to the preliminary plan for Year 2 — though they don’t have to make any.

Ritter noted that Section 16 states the legislature can adjust the built-in surplus levels mandated by the revenue cap if: “Each house of the General Assembly approves by majority vote any such appropriation for purposes of an adjusted appropriation and revenue plan.”

The speaker said the term “adjusted appropriation” refers to the second year of the biennial process and that legislators intended to make it easier to adjust savings requirements when not building an entirely new budget from scratch.

“There is no revenue cap in the budget adjustment,” he added. “It only applies when you adopt the original budget.”

The revenue cap stipulates planned spending can’t exceed 98.75% of projected revenues — there must be a cushion of 1.25%. It provides state government with extra insurance against a deficit should problems arise once the budget is in force.

When the preliminary $26 billion budget for 2024-25 was adopted last June, the General Fund analysts assumed the General Fund — which covers the bulk of state operating expenses — would receive $23.1 billion in revenue. That meant spending was capped at $22.8 billion, and the fund had to have a built-in surplus of $289 million.

Similarly, when Lamont proposed his budget adjustments last Wednesday, he proposed very modest changes in spending and assumed revenue and met the revenue cap requirement with a $290 million operating surplus.

But there are some complications.

Lamont’s fellow Democrats in the legislature’s majority say they want to add between $200 million and $300 million to preserve or bolster higher education, health care and social services programs.

And the Lamont administration recently projected more than $280 million in various cost overruns in the current fiscal year spread across several agencies. If some of those spending programs occur again next fiscal year, that also could increase the bottom line in 2024-25.

Why avoid bolstering some core programs, or cut spending in these areas, just to preserve a built-in revenue cap surplus, Democratic legislative leaders ask, when there is a second financial cushion also built into the budget?

Both the Lamont administration and the legislature’s nonpartisan Office of Fiscal Analysis estimate the program that bars legislators from spending volatile state revenues will save roughly $450 million next fiscal year.

Given that, Ritter said, the revenue cap-mandated surplus could be reduced, other core programs bolstered, and the state still could be on pace to finish 2024-25 well in the black.

Senate President Pro Tem Martin M. Looney, D-New Haven, said last week his office still is researching revenue cap rules but added there at least is “some ambiguity” whether an emergency declaration from Lamont and a three-fifths vote from the House and Senate is needed to modify those rules this year.

“That’s something I think we would certainly look at,” Looney added.

And a third Democrat also is questioning this issue.

State Comptroller Sean Scanlon, a strong advocate for the existing budget controls, said questions over whether they should be modified should be resolved by the legislature and governor.

But Scanlon said he consulted with Ritter on the statute and agrees that the revenue cap system could be modified this year with a simple majority vote in both chambers.

“I think they are designed in a way in that there is inherent flexibility,” Scanlon added.

That doesn’t mean, though, that spending likely will increase significantly beyond the original budget plan for the upcoming fiscal year.

Even if the revenue cap were modified, a second guardrail — the spending cap — would block big new appropriations.

The preliminary $26 billion budget for 2024-25 already exceeds the cap by about $30 million.

There are accounting maneuvers around the cap, such as intercepting revenues and spending them outside of the traditional budget, but the governor has been wary of supporting such moves.

Lamont, a fiscal moderate, is a strong advocate for the current guardrail parameters. Even if Democrats adopt a budget with more spending based on an adjusted revenue cap and a spending cap workaround, the governor could veto it.

“If they are going to come up with some type of proposal in writing that we can analyze,” said Jeffrey Beckham, Lamont’s budget director, “I’m happy to do that.”

But Beckham said the administration expects lawmakers’ budget adjustments to comply with all legal requirements, adding the governor is committed to fiscal stability.

The administration wants to safeguard recent investments in education, early childhood development and health care, and also to preserve hundreds of millions of dollars in tax cuts enacted the past two years, Beckham added.

And if the Democratic governor does veto a budget, he could find allies among Republican legislators.

House Minority Leader Vincent J. Candelora of North Branford told The Connecticut Mirror last week that while Ritter has discussed the revenue cap language in statute, the House GOP hasn’t researched the matter in depth.

Regardless, Candelora added, his caucus believes the current guardrails’ settings work fine.

“It’s there for us to exercise discipline,” he said. “I understand that these things might be painful, but they’re there for a reason.”

Senate Minority Leader Kevin Kelly of Stratford could not be reached for comment, but he also is a strong advocate for keeping the guardrails system unchanged.

Keith M. Phaneuf is a reporter for The Connecticut Mirror (https://ctmirror.org/ ). Copyright 2024 © The Connecticut Mirror.