The history of Connecticut’s spending cap, explained

For more than 30 years, one of the single largest factors shaping Connecticut’s budget has been its spending cap.

Legislatures and governors have trimmed countless programs to stay under the cap, crafted several maneuvers to circumvent it, and — on some occasions — exceeded it in a very public and legal fashion.

Here’s what you need to know about the cap that some officials love, others hate, and everyone has voted to keep in place, at least through 2028.

The spending cap first was enacted as a companion to the new income tax in 1991.

Legislators, anticipating public outrage over the new broad-based state income tax, enacted a statutory system that capped most areas of state spending based on formulas tied to annual growth in household income and inflation. Officials can use which metric allows the most growth in any given year.

And to assure voters these new controls were here to stay, lawmakers also endorsed a constitutional amendment mandating a cap on the 1992 election ballot.

A cap in statutory form could easily be repealed or revised simply with the passage of another law. But an amendment only can be removed or modified with another amendment.

More than 80% of Connecticut voters approved the constitutional amendment mandating a spending cap.

But the 1992 amendment didn’t spell out the full cap system. It set out the basics. General budget expenditures would be controlled in some way involving income growth and inflation. Payments on bonded debt would be cap exempt.

The amendment added that it would be up to the General Assembly to define the details by law.

By 1993, the General Assembly hadn’t yet implemented a new constitutional cap. That year, then-Attorney General Richard Blumenthal wrote in an opinion that legislators, having neglected to create a new system, had made the original, statutory cap into the constitutional cap by default.

Legislators and governors have routinely struggled to live within the cap’s limits.

The original version of the spending cap allowed for the legislature and governor to legally exceed it if the governor declares a state of emergency and receives approval by a three-fifths vote from both the House and the Senate.

During the tenure of Gov. John G. Rowland, who served from 1995 until he resigned in 2004, the legislature used that mechanism multiple times to spend surplus dollars near the end of a fiscal year.

By the mid-2000s, growing pension costs and modest economic growth were making it harder to live with the cap.

In both 2005 and 2007, Gov. M. Jodi Rell and legislators launched new biennial budgets that legally exceeded the cap from the first day of the fiscal cycle. That tactic had not been used before and has not been used since.

This was done to bolster new initiatives for health care, social services and municipal aid.

In 2015, then-Attorney General George Jepsen ruled that the statutory cap is unenforceable.

Jepsen disagreed with Blumenthal and ruled that the 1991 statutory cap did not carry the full weight of a constitutional amendment — rather, it was simply a law that could be repealed or amended at any time (such as, for example, by passing a budget that went over the spending cap’s limits.)

He said legislators can’t implement a spending cap amendment by default; rather, they must proactively implement one. The constitutional cap actually had never been fully established by the legislature.

In 2017, legislators passed a more stringent spending cap, and used a new tactic called “bond lock” to protect it from tampering.

As majority Democrats struggled to adopt a new state budget in what would become a nine-month-long struggle, Republicans would agree to help craft a bipartisan compromise.

One of the GOP’s conditions was a tighter series of fiscal guardrails. The new spending cap would eliminate an older exemption for aid to poor communities, and would phase out another exemption for contributions to pension funds.

But while Democrats and Republicans wanted to ensure future legislatures couldn’t easily repeal this new cap, neither side wanted to attempt another constitutional amendment.

They found their solution in the billions of dollars Connecticut borrows annually by issuing bonds on Wall Street. The money is used to fund initiatives like road and highway projects, municipal school construction and capital projects at public colleges and universities.

Those bonds include covenants that spell out interest rates, how funds will be repaid, and other details. These covenants effectively are contracts between the state and its investors, and, typically, one legislature cannot simply revise a contract established by previous lawmakers.

Lawmakers wrote into those bond covenants that their new fiscal guardrails would remain in place and, with limited exceptions, not be adjusted for five years.

The guardrails were bond locked into place through June 30, 2023. Last February, the legislature unanimously voted to extend the guardrails with a 10-year provision that the legislature can abandon after five years by passing a resolution.

Keith M. Phaneuf and Gabby DeBenedictis are reporters for The Connecticut Mirror (https://ctmirror.org/ ). Copyright 2024 © The Connecticut Mirror.