Face the Facts: Should the state adjust strict spending caps amid large budget surplus?

Connecticut continues its streak of having a large budget surplus for a 6^th straight year. Lots of Democratic lawmakers say it’s time to take a look at adjusting the strict spending caps. Should we? Rep. Holly Cheeseman (R-East Lyme), Ranking Member on the Finance, Revenue and Bonding Committee, joins Mike Hydeck with her take.

Mike Hydeck: One thing that can help to fill the 80,000 plus jobs open in Connecticut is making it more affordable to live here. Both parties have suggested adjusting the state's spending caps to make way for some progress on that, but they disagree on how they might do it. So should the guardrails be amended? Joining me now is Representative Holly Cheeseman, the Republican from East Lyme, Ranking Member of Finance and Bonding Committee. Good to see you. Thanks for joining us. We've done this via Zoom before, but we're finally doing it in person. So the guardrails, as we know, it's been well documented, have paid down more, I think, more than $7 billion in our long term debt, which was handed to us for decades of misbehavior, financially. It makes it more likely that employees and teachers in the future get the money they're going to be promised when they retire. Do they need tweaking though, do you think? There's been, what, six or seven years in a row we've had a major surplus?

Holly Cheeseman: Yes, and I want to thank you for having me here today. And I want to remind you, we're only having this discussion because of that historic bipartisan budget in 2017. And I remind people, Republicans were tied in the Senate, within four in the House. So as we found out, the best legislation happens when you have everybody at the table making sound decisions.

Mike Hydeck: And that sound decision has paid off over the years.

Holly Cheeseman: It has paid off big time.

Mike Hydeck: So when we have $1.3 billion, you know, hundreds of thousands each year, so many people are saying, Look, even in fact, you. You were in one of the news conferences a few weeks back. Republicans like, 'look, this surplus money could be used for helping soaring electric rates. It could be used for other things.' Should that be in the mix?

Holly Cheeseman: I think before we do any tweaking, we have to look at, as you mentioned, not only what got us here, the progress were made and what that tweaking would involve. We talked to, in your intro, you said, how much money do you need in a Rainy Day Fund? Well, Connecticut's Rainy Day Fund, which is currently full, would only pay for two months operation of state government. Two months.

Mike Hydeck: The cap is 18 percent?

Holly Cheeseman: Eighteen percent it's going up to. In your household budget, if you're reading those economic advice or financial advice online, it says, make sure you have six months worth of expenses. So before we do any big changes, one, let's remember by paying down that pension debt, not only have we assured employees of the state that the money is going to be there to pay them, we've also freed up about half a billion dollars every year that we can spend on those vital social programs.

Mike Hydeck: And we had a tax cut recently. And the social programs, though they're upset, they're like we've been underfunded for years and years and years, right? And so now they're saying, how can you help us?

Holly Cheeseman: Absolutely. They're still hurting. What I would like to see, again, before we substantially tweak the guardrails, let's look at some of the suggestions that have been made to find better spending. The governor paid $2 million in 2021 to the Boston Consulting Group for the Creates Report. That outlined a number of things in addition to making hiring practices better, digitizing state government, getting rid of…

Mike Hydeck: Some of that's underway. It's way easier to go through the DMV now than you ever were able to do it.

Holly Cheeseman: But they've only realized $50 million in savings. That report said we could save a billion dollars a year. A billion dollars a year. Through the Finance Committee…

Mike Hydeck: A year? Every year, a billion dollars?

Holly Cheeseman: Yes, through all these different methods, and they've only just touched on that. The Finance Committee passed a bill to look at our tax credits. We have $3 billion in stranded tax credits. That's money we can't spend.

Mike Hydeck: What's a stranded tax credit?

Holly Cheeseman: So let's say, we've mentioned manufacturing. So we're going to say, there's $10 million if you do certain hiring or you develop certain practices. That money is never spent. It's never given out to the recipient. But we can't spend it because we might need to give it to them. We passed a bill to give Sikorsky $75 million in tax credits if they got two new helicopter contracts. Those never happened.

Mike Hydeck: So now it's just sitting there in an account, so to speak?

Holly Cheeseman: Exactly.

Mike Hydeck: So, how do you re-examine that? Does that get brought up before your committee?

Holly Cheeseman: There's a task force that's going to study that and look at it. So that's another thing. Again, is there money on the table that we can use without tweaking the guardrails?

Mike Hydeck: Sounds like there is.

Holly Cheeseman: I would push that before I start messing with some.. you know, we may argue about the need for more funds, but let's look at how we're spending the money. And can we find the money elsewhere?

Mike Hydeck: Can I ask you a question? That Sikorsky example is very interesting to me. So $75 million is just sitting around, doing nothing right now, maybe gaining interest, possibly, I don't know. Is there a way, or should there be a way that that gets sunsetted? It can't sit there for 10 years. Maybe it sits there for 24 months.

Holly Cheeseman: And that was contingent upon them, you know, getting the contracts and hiring the workforce and keeping that. But there are so many different tax credits on the books. As I say, they have never been taken up, so we can't spend that money because it's not there. With regard to the guardrails, do you look at, okay, once we reach the 18 percent currently, you know, the extras go into the budget reserve, then once we fill the budget reserve fund, the two pensions. Do we look at that? On the other hand, both pensions are less than I think, the employee pension is funded less than 50 percent. The teacher's pension fund is only 52 percent funded. We actually have increased our pension liability since Governor Lamont took office because we've had some huge wage increases, which increases our pension liability. Some great steps that have happened.

Mike Hydeck: When the wages go up, what you pay out in pensions has to go higher.

Holly Cheeseman: I mean, we've seen some great steps. Our bond ratings have gone up through all the agencies, which makes it less expensive for us to bond for the things we need to do. Our treasurer has done an excellent job. We had years of no returns, and we've had 11-and-a-half percent last year. Just a few percentage points on returns on the pension make a big difference. I think the question is, however we address this, we need to do it in a way that gets buy in from both sides and achieves the desired results in a sustainable fashion. I mean, one of the reasons so many people supported that big income tax cut was that it would be sustainable. Connecticut has too many years of making promises to our residents about tax cuts, whether it's property tax, whatever it is, and then saying when bad times hit, oh, sorry, we ran out of money, we can't do that anymore.

Mike Hydeck: So last question, and I have no time left. Should they be reconsidered when the session starts in January, do you think? The guardrails?

Holly Cheeseman: I think we need to have a conversation about how to make Connecticut more affordable.