State Government Needs a Real Spending Cap

CBIA economist Pete Gioia appeared before the state’s Spending Cap Commission August 15, urging members to “take history to heart” by respecting the wishes of Connecticut voters.
Gioia discussed the importance of a viable constitutional cap to control state government spending and reduce the burden on state taxpayers while providing core programs and services.

Approved by 82% of Connecticut voters in 1992, the cap was meant as an offset to the widely unpopular state income tax the legislature approved the previous year.
It was designed as a tool to keep most budget appropriations in line with actual personal income increases and inflation.
“There was a strong recognition by policymakers that if you’re going to have a new, substantial source of revenue, you have to give voters and taxpayers some assurance that you wouldn’t spend like crazy, that you would somehow have your spending reflect what’s going on in the economy,” Gioia told the commission.
“There was always an understanding that the spending cap would be approved as a countermeasure to the income tax.”
However, 25 years later, with the legislature still to enact key statutory requirements, the cap has failed to curb the state’s appetite for spending.
While Connecticut’s population has grown just 9% since 1992 and inflation has risen 67%, state government spending has skyrocketed by an incredible 201%.

Spending on ‘Autopilot’

Governor Malloy called for lawmakers to enact the spending cap during this year’s General Assembly session, saying the way government currently budgets “puts spending increases on autopilot.”
A bill enacting the cap later died during the session—as did other spending reform measures—when the Appropriations Committee failed to act on it.
The lack of meaningful spending controls is a major factor in the state’s current cycle of deficits followed by tax hikes followed by more deficits that undermines the economy and job growth.
In the last five years, the state legislature passed two of the largest tax increases in state history. While lawmakers avoided more tax hikes this year—an election year—billion dollar-plus deficits are again forecast for 2018 and 2019.

Gioia explained that the cap was designed to be flexible when necessary and that expenses associated with certain budgetary items are exempt—for example, distressed municipalities, the first year of a federal mandate or court order, and emergencies declared by the governor (subject to 60% approval by the legislature).
“It is not and has never been an ironclad lock on spending,” he said.

Novel Exemptions

Over the last few years, however, some lawmakers worked to have more and more expenses exempted from the cap through novel interpretations of what constitutes exempt expenditures.
One of these, Gioia noted in his presentation, are payments made to fund state employee pensions and post-retirement health benefits, which were taken out from under the cap in 2014.
He told the commission that the original intent of the cap’s architects was to have these payments under the cap but that they did not specify it in the original language because they didn’t think it was necessary to explicitly say so.
“The state spending cap is not perfect,” says Gioia, “but it gives policymakers pause when they may be thinking about expanding the state’s role beyond core services.
“It forces them to find ways to prioritize, just like business people and families do when setting their own budgets."
Created during last December’s special budget session, the 24-member Spending Cap Commission is chaired by former state budget director William Cibes, Jr., and former state representative and Finance Committee chair Pat Widlitz.
The commission is required to present its final report to the legislature by December 1.