A “bond lock” has tied lawmakers’ hands for years. Responsible adjustments to the fiscal rules will give us a healthier future
When times are tough, you reevaluate your budget. Let’s say you have to pay off debt, manage your finances, and make tough decisions to stretch your money as far as you can. To add accountability, you signed a contract with a bank agreeing to stick to your rules – but also promised to keep your rigid budget for the next decade.
A lot can happen with your finances in 10 years. That’s true for both you, and Connecticut.
The state adopted a set of “fiscal rules” in 2017 to help navigate the government out of a financial crisis. The rules set a series of caps, while also binding future legislators’ hands from changing them. Our state isn’t in the same situation that it was in 2017. Now, without thoughtful and responsible adjustments, critical services like early childhood education funding and housing assistance could be cut within the next few years.
Our government has the revenue to make up the difference from a looming budget cliff. However, under the existing rules, it can’t be used.
The fiscal rules are a complex equation made up of multiple caps dictating where and how much money can be spent. There’s a spending cap limiting how much the government can appropriate each year, a volatility cap that keeps the state from relying too much on revenue sources that can drastically change, a revenue cap that created a “cushion” to protect the budget, and a bonding cap that limits how much the government can borrow on the state bond agenda. These are enforced through the “bond covenants,” also referred to as the “bond lock.”
What is the “bond lock”?
Bonds are an important tool written into the state’s budget. Our government uses bonds to pay for big projects like building the new elementary school in your neighborhood and repairing the highway you take to get to work.
The rigid bond lock is a legally binding promise from the government stating that the fiscal rules won’t be changed. The bond lock proves to Wall Street that Connecticut is taking its fiscal health seriously. It’s boosted investors’ confidence and led to increased credit ratings. But Wall Street and investors are not the full picture of our state’s financial health, and the bond lock has made it extremely difficult for lawmakers to make necessary changes to the fiscal rules.
The bond lock was enacted in 2017. It was reapproved in 2023, with those promises reaching into 2033. While each cap in the fiscal rules has its own requirements for how it can be changed, the bond lock specifically has a high threshold.
The existing rules require the governor to declare an “emergency” or extraordinary circumstances in order to change the bond lock. Then, three-fifths of the state House of Representatives and Senate would need to approve it. Even after reaching that threshold, the change would only be for a single fiscal year.
A one-off change to the bond lock would also only be a temporary fix for necessary long-term change.
Adjusting the fiscal rules themselves is going to require thoughtful structural adjustments to move toward a Connecticut where everyone has the freedom to thrive.
The initial set of bond lock conditions are frozen until 2028. Putting off changes will push the timeline farther down the road. Connecticut can’t afford to delay a solution any longer, or hardworking families will pay the price.
The status quo isn’t sustainable
The reality is that CARES Act and American Rescue Plan Act (ARPA) funds have hidden an upcoming budget cliff for years. That federal aid is about to end. Without changes, Connecticut is facing a $1 billion shortfall in 2026 that could lead to cuts in critical areas that have helped hardworking families navigate the cost-of-living crisis. At the same time, recent federal funding threats have made clear that our state might need flexibility to protect essential services.
Our government already has the revenue to offset the budget cliff. However, lawmakers need to change the rules so the legislature can use it.
While we’re facing a fiscal cliff and threats to federal funding, the reality is that the fiscal rules have also led to short-term bandaids and gimmicks to make the budget work, instead of making sustainable change. Connecticut residents deserve a transparent and reliable budget. Those workarounds and temporary patches don’t provide that. Our government needs to respect the hard work of the people in this state and fund critical services to help deal with more expensive child care, housing, and utilities.
Changing the rules invests in our future
Connecticut has used ARPA and CARES Act funds to invest in early childhood education and help parents pay for rising child care costs. We’re already in a child care shortage. Keeping the rigid fiscal rules could lead to cuts, moving care even more out of reach.
The state is sitting on a $1.5 billion surplus while families struggle. It’s also hit the ceiling for how much it can stash away in the rainy day fund to prepare for a possible recession.
Our government can fund critical services with revenue that’s already coming in, as long as the fiscal rules are changed. We value our communities and deserve a government that respects them as much as we do. Our lawmakers can show they’re working hard for us by thoughtfully and responsibly adjusting the rules.
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.