HARTFORD – Lawmakers plan to vote Thursday on a bill that would modify some of the existing budget safeguards — one measure that would put aside more money in the “rainy day fund” and another that would allow the state to spend a greater amount of its revenue on programs like education funding.
The safeguards, capping how much the state can increase its budget, limiting the percentage of revenue that the state can spend, and requiring the state to put aside additional revenue in excess of $3.15 billion into a “rainy day fund,” were created as part of a bipartisan budget deal in 2017.
State Rep. Matt Ritter, D-Hartford, Speaker of the House, told CT Examiner that he had spoken to colleagues and that they felt that the rainy day fund needed to be enlarged to offset any declines in the stock market, which he said would have a “huge impact” on the amount the state can collect in capital gains tax.
Last year, the S&P 500 declined 34 percent, after a 35 percent gain in 2021.
According to State Rep. Holly Cheeseman, R-East Lyme, the State Comptroller was reporting declines in the pass-through entity tax and a slight decline in sales tax, but that recent employment numbers nationwide were positive. Cheeseman said that the state was benefiting from efforts to pay down pension obligations.
“We are in a better position in that at the very least, we freed up available revenue because we’d pay down pension to the tune of 300 or 400 million a year,” said Cheeseman.
In the last four years, Connecticut has had a $2.1 billion surplus and placed $7.2 billion in the rainy day fund, as well as using $5.8 billion to pay down some of the state’s unfunded pension liabilities, according to a press release from the Office of the Governor.
But Cheeseman said she believed that lawmakers should be “cautious.” She said that although sales tax had increased by about 12 percent last year due to inflation, they also needed to consider that when inflation drops, sales tax revenue will drop as well.
Ritter said the bill – which he expects to receive a vote on Thursday – would increase the amount required in the reserve fund in excess of the current 15 percent. Ritter said he felt that adding an additional $600-700 million to the rainy day fund would help protect the state from any sudden plunges in revenue caused by the stock market.
Ritter said he felt that even if revenues dropped significantly this April, the state would still have a large surplus.
“I think it’s unlikely that you’d have a problem in FY 23 or FY 24, and frankly even FY 25. I think the surplus is pretty robust [over] the next couple of fiscal years,” he said.
State Rep. Vincent Candelora, R-North Branford, the House Minority Leader, told CT Examiner that he believed the state had enough money to weather any potential stock market drops with the $3.1 billion that the state has put away.
“I think we have sufficient resources to cover … the deficit that occurred in . and I don’t anticipate us seeing a market drop of that magnitude,” he said.
State Sen. Cathy Osten, D-Sprague, chair of the Appropriations Committee, said the Office of Fiscal Analysis was projecting a $1-2 billion surplus in each of the next two fiscal years. But she said they needed to be aware that the state was not going to be able to fund all the things that different legislators and groups were asking for, especially if they wanted to ensure that the programs already in place were funded properly.
“I think people should be cognizant of what we’re spending money on,” she said. “If they add up what everybody has decided that we’re going to spend, I think we’re around the $1 billion mark, and we’re not going to be able to do that,” she said. “So I just think people need to be conscious of that.”
Ritter also said legislators also planned to modify the revenue cap.
According to the current budget deal, the state is required to set aside 1.25 percent of its revenue — an amount that is scheduled to increase to 2 percent in the year 2026. But Ritter said that, over the last three years, the revenue cap had caused “a built-in surplus on top of record surpluses.”
Ritter said that if the legislature were to freeze the revenue cap at 1.25 percent rather than increasing the amount of money the state needed to put aside, the state would free up $200 million, which Ritter said could be put aside to pay for an increase to state education funding.
Candelora said that while the Republicans would prefer to leave all the caps as they are, he was willing to support freezing the cap at 1.25 percent. He also said that he was generally in favor of putting more money toward education, especially toward a “choice” model supporting technical, agricultural and magnet schools.
“I personally believe that the state foundation [education formula] has never been funded enough. So I do believe the state should put more money toward the education formula whenever it can,” he said.
Cheeseman said that “hypothetically,” she, too, would be in favor of freezing the revenue cap if all the other caps remained in place.
“We are only in the place we are to weather fiscal storms because of those caps, and we don’t help ourselves in any way, either … now or in the future by getting rid of the things that have put us in the position to be able to weather those fiscal storms,” she said.