The billions of dollars in surplus Connecticut is expecting in state coffers over the next two fiscal years is the result of many factors.
They include the recently surging stock market and the rules lawmakers put in place when it comes to spending that extra tax money the state gets when the market surges. It's called the volatility cap.
Lawmakers can only spend so much of that surge in tax money - the rest goes into the rainy day fund. More of it goes to paying long-term debt down.
But was this program almost too successful? Is it time to change some of the rules that guide spending moving forward?
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NBC Connecticut's Mike Hydeck spoke with Senator John Fonfara, who is one of the architects of the 2017 bipartisan budget that put this volatility cap and other spending guards in place.
Mike Hydeck: So as we move forward, is it time to change the guardrails or adjust them? Was this program too successful? Do you think, looking back at it?
John Fonfara: Well, I don't think anyone would say it's been too successful. It's been extraordinarily successful, far more than I or any of my colleagues could ever have predicted. But, you know, what's driving the change that we recently did, was that there, the clock was ticking. The five years that we had put into the bill back in 2017 that was tying the covenant, which is a contract between bondholders and the State of Connecticut, that we would adhere to our commitments. A statutory change is only as good as future legislatures will retain that. But they can change it at any time. And so the covenant, or a contract, that we entered into with bondholders said we will adhere to these requirements. And that was expected, is expiring on July or June 30 of this year. And so we extended those provisions for another five years with the opportunity to extend that for an additional five years for a total of 10, if the legislature doesn't act in the interim, in the ensuing five years, to say we don't want to extend that. I hope that doesn't happen. I hope we do extend it for the full 10 years. But that's part of the agreement that we entered into this past week. And so that's number one. Number two, we also adjusted what is called the revenue cap. And that is in a budget year, piggy bank, if you will, that says that we won't spend up or appropriate up to the last dollar. And anyone at home, in a business, knows that there are unforeseen expenses that come along the way. That is true for our budget process, as well.
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Mike Hydeck: You're looking to keep a cushion in there just in case...
John Fonfara: A cushion. Absolutely right. And that's within the budget year itself. And that was moving slowly towards 2% of our revenue that we generate, that we could not spend. But we all felt that maybe that was more than what was needed. And currently it's at 1.25% of what we have what we raised, we can't spend. And that's where, we freeze it at 1.25%.
Mike Hydeck: Let me interrupt you for a second. A lot of people are thinking, look, we've had this overwhelming surplus for several years now. It's projected again to happen for the next two fiscal years. Should more be done? Some of the critics are saying, look, we need to address things like affordable housing, the massive inequality in wealth in Connecticut. You have the hedge fund managers and then you have people who can't put food on the table. Is there something we can do with this overwhelming surplus to try to mitigate some of those?
John Fonfara: And I agree with those arguments in that position. I share it. However, you know, if we start to spend the surplus, I've been through three recessions, Mike. As a legislator, and I can tell you it is very difficult. And who do we hurt the most when we go into deficit? The people who need it the most, and many of my constituents in particular, but others around the state. And because when we go into a deficit, we generally do two things. We cut services, and we raise taxes to things that are counterintuitive, counterproductive when you're in a recession. And the reason for the full budget reserve fund and we, the third leg of this is to extend it to 18%, is because we want to be able to withstand a recession. And withstand now what we recently passed, withstand an even greater recession than a moderate one, which Moody's, the rating agency, said at 15% that will withstand a moderate recession.
Mike Hydeck: We are in a good bond rating. We're in a good bond rating position right now, we're in the best fiscal position we've been maybe in the state's history, nearly close to it... If we could get one thing on the budget that would help the average American or low-income Americans when we get this budget finished by June, what do you think it should be?
John Fonfara: What we just did is the most important thing because by paying down debt, we've already just in five years, we're saving $500 million here, Mike, that will, if we budgeted right, be working to help those individuals you just described, the folks that I represent, in other cities and other communities around the state, eastern Connecticut, folks who need us the most, $500 million a year we've already saved, and we will continue. With what we just passed, we will continue to grow that, think about that. $500 million a year now is available. And will be going forward every year to support programs, whether it's early childhood education, whether it's health care, whether it's job training. Focusing on the most needy communities, the most high poverty, low opportunity communities of our state, which we don't target right now.