Martin M. Looney

Senate President Pro Tempore

Martin M. Looney

An Advocate for Us

May 11, 2017

Senate Democrats Announce Budget Predictability Plan

Proposal to Bring Structural Change and Stability to Connecticut’s Budget

Senate Democratic leaders of the General Assembly today unveiled their budget predictability plan. Since the national Great Recession, Connecticut has suffered from volatile revenues and unpredictable budget deficits. At the same time, unfunded liabilities have come to consume a growing portion of the State’s budget.

To address this problem and get Connecticut on steady financial footing, the Senate Democrats proposed instituting a budget predictability plan, recognizing the need to grow a robust Rainy Day Fund and pay down our long-term obligations.

“What we have developed is a responsible plan to eliminate wild fluctuations in our budget from year to year, while also remaining committed to paying down our unfunded liabilities and long-term debt obligations,” said State Senator Mae Flexer (D-Danielson). “This retooling of the way we predict revenues will allow us to get off the roller coaster the state has been riding financially, while also saving for our future and I am proud of the plan we have developed to stabilize our finances in the State of Connecticut.”

“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. “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.

The estimates and finals portion of the state income tax is the portion paid by individuals who do not withhold income taxes—including small business owners and financiers who earn income from capital gains. The Democrats’ plan:

  • Sets a permanent cap on E&F revenues at projected FY 18 levels—revenue below this cap level would be eligible for general appropriations—i.e. to be built into the state’s baseline budget. Revenues above the cap level would instead be dedicated to savings.
  • Dedicates revenue above the cap level to responsible savings & additional debt payments—all E&F revenues above the cap level, i.e. all E&F growth from FY 18 forward (est. $30 million in FY 19), would be dedicated to structural improvement of the state’s fiscal health, as follows:
  Proposed (Volatility Cap)
BRF Balance / Appropriations Budget Reserve Fund Unfunded Liabilities Capital Expenditures
0 to 5% 24% 75% 1%
5 to 10% 45% 50% 5%
10 to 15% 42% 50% 8%
Greater than 15% 0% 90% 10%

The Senate Democrats’ plan would provide multiple benefits to the state’s fiscal health, including:

  • Managing our unfunded liabilities—Dealing directly with our unfunded liabilities by making additional, early contributions to the state employees’ and teachers’ pension funds, and retiree healthcare.
    • Additional payments made sooner will decrease the need for large payments in future years.
    • These payments would be in addition to annual ARC pension payments.
    • Establishing a permanent plan to manage our unfunded liabilities will improve the state’s standing with credit rating agencies—which may lead to lower interest rates on state bonding.
  • Lowering fixed costs—Additional payments on our unfunded pension plans will help to lower fixed budgetary costs in the future, preserving funding for essential safety net and economic development initiatives.
  • New contributions to the Budget Reserve Fund—Growing our rainy day fund better prepares CT for future recessions and further improves our credit rating, which means lower interest rates on bonding.
  • Available savings for capital projects or critical one-time initiatives—Allows for direct payment for capital projects or critical one-time initiatives, in lieu of issuing new bonds.
    • Paying for capital projects with free cash, as opposed to issuing bonds, saves the state on interest payments.

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.

The new proposal will not reduce the bottom line of the state budget in FY 18, unless estimate & finals revenues exceed current projections. In FY 19, the proposal is expected to reduce available revenues for general appropriations by $30 million.

Additionally, over the last six years, Democrats have consistently funded annually required contribution (ARC) payments on the state employees’ pension plan, reversing decades of negligent fiscal management by prior Republican and Democratic administrations.