Higher education, childcare providers and substance abuse programs – just three of the areas clamoring for more state funding. NBC Connecticut’s Mike Hydeck spoke with Keith Phaneuf, the state budget guru and reporter for the Connecticut Mirror.
Higher education, childcare providers and substance abuse programs - just three of the areas clamoring for more state funding.
And as budget negotiations start in the new year, many of them are saying the nonprofits who provide these services, they want to use the state surplus money to help them do their jobs and get what they need.
But is that feasible, and will the numbers work?
NBC Connecticut's Mike Hydeck spoke with Keith Phaneuf, the state budget guru and reporter for the Connecticut Mirror.
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Mike Hydeck: Keith, before we get started digging into the numbers, I want to kind of explain the volatility cap, and correct me if I'm wrong here. Because Connecticut has so many hedge funds that make hundreds of millions, if not billions, of dollars, when the stock market does really well, they pay more taxes going into Connecticut state coffers. When the market takes a dive, they pay fewer taxes. That's correct, right? So because of these big swings, that amount is a volatile source of revenue that the state can't necessarily count on. So remind people, what are the rules on how the state can use that money that's under the volatility cap?
Keith Phaneuf: That was a good summary. What the state did, starting in 2017, is they set a threshold. They said, "Okay, some of this money we can use," but like you said, because it fluctuates so much, we don't want to spend all of it. So the key is, how do you decide how much is safe to use and how much is risky? The 2017 legislature kind of arbitrarily just said, "Well, how much came in last year? OK, anything over that threshold is not safe to use." Now, they adjust that threshold every year for household income, but if that threshold is bad, all your adjustments will be bad. And it turned out that that threshold was probably one of the weakest years in about a decade and a half. In other words, it's very easy to beat. So as a result, we've been running up massive surpluses. That doesn't necessarily mean it's money we don't need. We've kind of arbitrarily stopped paying certain bills, just like if you opted not to pay your mortgage, you opted not to pay your electric bill, and you spent $10 a week on groceries and nothing more. Your family would be eating bologna and water in the dark, waiting for them to take your house away. But boy, your savings account would be booming.
Mike Hydeck: So can I jump in real quick here? So the bills we decided not to pay would be maybe cost of living influences in adjustments for these nonprofits? Meaning we're not funding retirement homes more the way we should. Is that what you mean, when you decided what not to pay?
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Keith Phaneuf: It's a little bit more than that. That's a good start, but the surpluses we've been getting just through this volatility adjustment you talked about are equal to about 6% of the general fund. Now you might think that doesn't sound like that much, but probably three quarters of the budget is tied in with fixed costs, whether it's payments on debt or pension obligations, whether it's state employee wages and benefits set by contract. So if you only have 25 percentage points to play with, and you took six of them out of play, all of a sudden it's having an effect, like you said, on nonprofits. Community college tuition is about 11% higher than it was two years ago. Our Medicaid rates for specialists haven't been adjusted comprehensively since 2008 and we're competing with states like West Virginia for the amount of money we pay. We've slipped in a lot of areas.
Mike Hydeck: One of the wealthiest states in the country, yet we're competing with West Virginia on how much we pay in certain areas. That seems to be unfathomable. All right, Senate Majority Leader Martin Looney said, "Look, these guard rails need to be adjusted to fund things like education and childcare. More money to cities and towns." But can we still, if they are adjusted, can we still pay down long-term debt like we have, and give more money to these other things?
Keith Phaneuf: That's a really important point. Nobody in the legislature, from the most conservative to the most liberal, has proposed repealing this system. Everybody has just said it needs to be recalibrated in the same way. If you woke up in mid-January, you were hot, you wouldn't go downstairs, rip out your furnace and throw it on the lawn. You just lower the thermostat. The fear, though, is the legislature, if you give a little bit, some people who remember days of tax hikes and budget deficits are afraid, we give them a little latitude, they'll slip. But the numbers really are just not adding up. I don't see any way to get through the next session without adjusting this somewhat.
Mike Hydeck: So the governor and Republicans in the House and the Senate say, "Look, don't touch the guardrails." We were able to create sustainable tax cuts, increase funding in other areas, albeit we didn't pay some other areas. Is there a middle ground? Do you think will they be adjusted, in your opinion?
Keith Phaneuf: I think just the math and the politics say so. There is middle ground, Mike. Don't forget, Governor Lamont hasn't said yet whether he's running for a third term, but let's say he wants to leave open that possibility. It's going to be pretty hard to produce a scorched earth budget, and it's getting close to what he would have to do. The only thing that's, to live within these guardrails as they stand now, the problem with that is you, it's one thing when you produce a bare bones budget or a painful budget with cuts when you're looking at a deficit. It's another thing when you've got a huge pile of cash off to the side, but you're saying that cash is special. You can't touch that. I think it's going to be very hard for Governor Lamont to put out a budget proposal in February that that really cuts deeply with this much money off to the side.
