Larson Champions Democrats’ Budget Predictability Plan
State Senator Tim Larson (D-East Hartford) today joined Senate Democratic leaders in supporting a ‘budget predictability plan’ that would help Connecticut avoid future revenue volatility while simultaneously reducing the chance of unpredictable budget deficits and paying down some underfunded liabilities.
The Senate Democrats’ plan permanently caps the amount of revenue that the state can expect to collect every year from its highly volatile estimates & finals (mostly capital gains) portion of the state income tax; the plan caps those estimates at $3.1 billion per year, the current year’s collection rate, and does not assume any more revenue will be collected from Connecticut’s wealthiest residents.
Any revenues that might be collected above that $3.1 billion in future years would be dedicated to increasing the state’s budget reserve (known as the ‘Rainy Day Fund’) or making payments on unfunded liabilities, such as employee retirement pensions. Contributions could also be dedicated to certain one-time capital projects, paying in cash, rather than borrowing money.
“This budget cycle at the state level has been really difficult, when considering the outlying expenses that we have and how they are expected to continue to expand in the future if we don’t make a significant change to how we interpret revenues and plan to pay for our obligations,” said Sen. Larson, a former East Hartford mayor. “What we are proposing is to put a mechanism in place that starts to control and pay forward some of those obligations. I think the people of Connecticut—including retirees, business owners and state employees—are looking for some stability, and we believe this plan will be used at a tool to guide us in forecasting what pension costs and the state’s responsibility will be going forward. We need to pay down our debt and put money back into our reserve fund. This is a tremendous step forward for us, and over time it will show our municipalities and business community that the State of Connecticut is serious about paying down debt and controlling spending.”
The Senate Democrats’ plan builds on recent Democratic efforts to lay out a Sustainable Path for responsible allocation of future year budget surpluses—also targeting budget reserve savings and accelerated debt repayment. Today’s proposal goes even further, dedicating volatile revenues above the cap level to savings even without the presence of an overall budget surplus.
“By limiting our state’s current and future reliance on highly volatile revenue streams, we can provide for more predictable budgets going forward and greater stability for all state initiatives,” said Senator John Fonfara (D-Hartford), Co-Chair of the Finance, Revenue & Bonding Committee and the architect of the budget predictability plan. “Dedicating volatile revenues we do receive to savings will strengthen the state’s fiscal position by improving our credit rating and paying down the unfunded liabilities that are now consuming an increasing share of state resources.”
The Senate Democrats’ plan sets realistic expectations for our capital gains and other volatile income tax revenues by permanently capping the estimates & finals (E&F) portion of the state income tax at projected FY 18 levels.