How the spending cap is limiting investment in our future
The fiscal rules have put the state in a bind.
Your family budget usually depends on two things: how much of your paycheck you take home, and what you can spend it on. But what if you decide your rent doesn’t count as spending one month, but does the next? Or that meat is part of your grocery budget, but fruit isn’t? That’s inconsistent, and it doesn’t make much sense. But that’s exactly what our government is doing to make the state budget work. That doesn’t make for a transparent budget – or a sustainable one.
Connecticut’s “spending cap” is a bit of a misnomer. It’s one piece of the state’s rigid fiscal rules, but what’s under it is constantly changing.
The spending cap is only one piece of the state’s rigid fiscal rules. Others include the revenue cap, bond cap, and volatility cap. There’s also a “bond lock” that ties our lawmakers’ hands from making significant changes to the rules until 2028. Our blog breaks down the different caps, how they overlap, and what it will take to change each of them.
On the surface, the spending cap boils down to how much Connecticut’s government can spend in the budget. Unlike the rest of the fiscal rules, which were adopted in 2017, the spending cap dates back to when Connecticut created its first state income tax in 1991.
The cap ties the next year’s budget to what it was the previous cycle. There are two guidelines used to dictate how much an increase can be: the increase in the public’s personal income, or the increase in inflation, whichever is greater.
That doesn’t mean that the budget is constantly getting bigger. The spending cap goes down – meaning the budget goes down – if the state doesn’t spend as much as it’s allowed to during a budget cycle. That creates a pattern of forced lowered spending. Connecticut saw that happen between fiscal years 2017 and 2019, and we’re seeing the impact of that decision today. Because the state chose to spend less then, the budget did not grow as much over time. As a result, the spending ceiling is $1.8 billion lower than if the General Assembly had appropriated as much as the cap allowed in 2017 to 2019.
The state House and Senate control the definitions driving the spending cap. The General Assembly decides what the terms “increase in personal income,” “increase in inflation,” and “general budget expenditures” mean. Those can change through a three-fifths majority vote in the House and Senate. Structurally adjusting the spending cap – meaning getting rid of it altogether, or changing the things the legislature must consider to adjust it – requires amending the state constitution.
These rigid rules mean the spending cap encourages lawmakers to work around it instead of dedicating the government to thoughtful, responsible, and transparent adjustments. So, for example, the items that fall under the spending cap are constantly changing. Categories have been included, and then kicked off, from budget to budget – which would be like a family deciding that fruit didn’t count toward the weekly grocery budget, but meat does. Financial aid to struggling municipalities, for example, used to not be covered by the cap, but was moved into the category starting in the 2024 fiscal year. Contributions to the teacher retirement system liabilities aren’t under the cap, but contributions to the pension fund are.
Constituents deserve transparency from our government. But that kind of inconsistency makes it hard for people to know how the state is spending money, and whether essential programs and services are at risk. The budget needs to serve the hardworking people of this state. And while the fiscal rules were created to give the government stability during a budget crisis, those rigid guidelines have set the stage for another one.
The reality is that federal pandemic relief funds have hidden a $1 billion budget cliff that will hit Connecticut in the 2026 fiscal year. CARES Act and ARPA funds supplemented the budget by providing $4.2 billion over multiple years. That money represented 20% of Connecticut’s budget in the 2021 fiscal year alone. Pandemic funds infused $276 million to support early childhood education alone, and another $236 million in emergency rental assistance to help people stay in their homes. At the same time, Connecticut is facing threats to our funding from the federal government. The current administration is trying to get back at states that disagree with its policies, at the expense of hardworking Connecticut people, and putting essential programs and services at risk.
Connecticut to be accountable to hardworking people by protecting crucial services like early childhood education, rental assistance, healthcare, and infrastructure. But, under the existing spending cap rules, the government can’t use it.
Critical services are at risk during a time where Connecticut is facing a cost of living crisis. The price of food, utilities, and rent continues to increase. Cutting services now will hurt hardworking Connecticut families instead of giving them the freedom to thrive.
Lawmakers must dedicate themselves to responsibly adjusting the multiple caps controlling the fiscal rules. There isn’t a single fix that can stand on its own. Even if the state frees up funds from the volatility cap and adjusts the revenue cap, the spending cap would force the government to reduce spending by $863.5 million – at a time when we have a surplus of more than a billion dollars.
One-time fixes and workarounds aren’t enough. Change will stop the government from continuing to kick the can down the road. It’s possible, and it’s happened before. Connecticut governors have reset the spending cap’s base seven times since 1991 by declaring an “emergency or the existence of extraordinary circumstances” and receiving the support of three-fifths of the House and Senate. It most recently happened in the 2007-2009 budget cycle.
The current rigid fiscal rules are making the government less responsible to people’s needs. They’re also preventing lawmakers from investing in the state’s future. Changing the rules is a responsible, thoughtful, and transparent way to make Connecticut’s budget support the hardworking people of our state and avoid cuts to critical services.
A joint report by The Connecticut Project and Yale University’s Tobin Center for Economic Policy provides a deep analysis of the fiscal rules. Read the full report for data-driven options for Connecticut’s future.
