Spending Cap Hearing Set for April 3
It was 25 years ago—back in 1992—when Connecticut voters approved an amendment adding a spending cap to the state Constitution.
The idea was to mitigate the introduction of a state income tax in 1991 by forcing lawmakers to keep spending in line with inflation and actual increases in personal income.
It hasn’t worked too well.
While Connecticut’s population grew just 9% since 1992, and inflation rose 67%, state spending has skyrocketed by 201%.
After working for almost a year, a State Spending Cap Commission failed to reach a consensus last year on recommendations to fully enforce the cap.
And that brings us to this coming Monday April 3 at noon, when the General Assembly’s Appropriations Committee holds a hearing in Room 2E of the Legislative Office Building to once again hear comments on more than a dozen proposals that put teeth into the spending cap.
They’ll also hear testimony on many other budget-related bills, including unfunded mandates.
CBIA economist Peter Gioia and senior vice president Brian Flaherty will testify at the hearing.
Spending Cap Weakened Over Time
Despite the overwhelming approval of the cap by Connecticut voters in 1992, the cap has never lived up to expectations.
A large part of the problem with the cap is that lawmakers failed to fulfill key statutory requirements—defining what “general budget expenditures” are and determining how personal income growth and inflation should be measured.
Gioia said some legislators over the years worked to move state spending from under the cap by creatively redefining it, thereby weakening it.
For example, in 2015 lawmakers removed payments to fund state employee pensions and post-retirement health benefits.
Those payments represent a significant portion of the state budget.
The lack of meaningful spending controls has fueled the cycle of budget deficits followed by tax hikes followed by more deficits.
That is what triggered the commission. And the commission's failure triggered this year's legislation.
Gioia cited HB 6511 as the best among the bills that seek to strengthen the spending cap.
“The bill reflects the original intention of the cap, especially in regards to federal funds and indebtedness,” Gioia said.
“It does not change the definitions on inflation and average wage growth.”
Connecticut Needs the Cap
Holding the line on spending cap exemptions is critical to restoring fiscal stability in Connecticut, Gioia told the Spending Cap Commission last year.
“There was always an understanding that the spending cap would be approved as a countermeasure to the income tax,” he said.
"It is just as important now as it was then."
CBIA has long championed a working spending cap. In fact, enacting the state’s original spending cap is among the measures CBIA called for in its 2017 legislative and regulatory agenda.
The lack of meaningful spending controls has fueled the state’s cycle of deficits followed by tax hikes followed by more deficits.
Once again, as lawmakers prepare a biennial budget for the fiscal year that starts July 1, they are looking at a projected $3.6 billion deficit.
“Predictability and sustainability in state spending will encourage economic investment, and increase business confidence and job creation,” Gioia said.
“We can achieve this with a spending cap that is as comprehensive as envisioned by the original constitutional amendment.”
Making Mandates Harder to Impose
Gioia will also testify in favor of HB 5220, which requires a two-thirds vote of each chamber of the legislature to pass any law imposing unfunded mandates on cities and towns.
“We feel the two-thirds vote effectively precludes any mandate unless it’s absolutely essential without prohibiting some future action, which may be essential,” he said.
If you are unable to attend the April 3 hearing, CBIA urges you to submit a statement through email to the Appropriations Committee (please copy CBIA’s Peter Gioia).
For more information, contact CBIA’s Pete Gioia (860.244.1945) | @CTEconomist
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