Gov. Dannel Malloy proposed definitions earlier this year to finally implement the 25-year-old constitutional spending cap. His budget chief admitted Monday that, unless lawmakers pass the administrations' proposed definitions, his proposed budget will exceed the existing cap by $153 million.
Testifying before the appropriations committee, Office of Policy and Management Secretary Benjamin Barnes said that the governor’s budget excludes payments for unfunded pension liabilities from the state spending cap.
The spending cap in state law, which was adopted in 1991, stipulated debt service payments, aid to distressed municipalities and federal grant costs could be excluded from general budget expenditures.
But over the years the spending cap has been exceeded through legislative vote, a provision utilized by both Gov. John Roland and Gov. Jodi Rell.
Barnes testified in support of Senate Bill 720 which proposes definitions for “general budget expenditures” to exclude payments toward the unfunded pension liabilities.
Barnes acknowledged that the governor’s budget is $153 million over the state spending cap if the changes to exclude pension liabilities are not adopted as part of this budget cycle. Otherwise the state may have to cut that additional spending.
In 2015, legislators voted to exclude pension liability payments from the spending cap until 2017. Although the temporary provision is set to expire the governor is still using it as the basis for his budget.
The payments for the unfunded liabilities is one of the major drivers of Connecticut’s budget deficits and are expected to continue growing from $1.6 billion to $2.2 billion by 2032, following a restructuring of the pension debt by Malloy and union leaders.
Those figures do not include payments for the unfunded liabilities in the teachers retirement system, which adds a significant amount to the total liability payments made by the state.
Malloy has removed spending from the cap in the past by including the changes in his budget or shifting the funds through different avenues of spending.
According to the Office of Fiscal Analysis' report to the spending cap commission, the governor removed $2.8 billion in state spending on Medicaid from the spending cap in his 2014-2015 budget, which was then set into law through the budget implementer.
Malloy also managed move $67.9 million in education spending for charter schools out from under the cap by funneling the money through distressed municipalities in 2012.
This is also not the first time the unfunded pension liabilities have dominated the debate over the spending cap. The 2016 spending cap commission was charged with defining “general budget expenditures” but could not resolve the debate on whether or not the pension liabilities should be included under the cap.
Rep. Melissa Ziobron, R-East Haddam, served on the spending cap commission and voiced her opposition to excluding those payments from the cap. Part of Ziobron’s concern is that moving various expenditures “off budget” would incentivize further unsustainable spending by the state.
“I definitely do not support taking off unfunded pension liability and pretending those costs don’t exist,” Ziobron remarked.
Rep. Christopher Davis, R-East Windsor, who serves on the revenue, finance and bonding committee also disagreed with moving the pension liabilities off budget. “It has to be paid for by something,” he testified before the committee. “We have to raise the revenue to pay for that and by removing it out from under the spending cap it just allows other spending to be made.”
However, excluding pension liabilities from the state spending cap did have support from union leaders and representatives who believe that including the liability costs under the cap will crowd out state spending in other areas.
Brian Anderson, legislative representative for AFCSME Council 4, labelled the state spending cap “an artificial construct that has served the state poorly,” and blamed the unfunded pension liabilities on the spending cap saying it was a “major factor” in the state not making its annual required contribution to the pension fund.
However, another major factor in the state underfunding pensions is the fact that labor union leaders had to sign off on the state underfunding the pensions every time it happened.
An analysis of state spending since enactment of the state spending cap shows that if Connecticut had adhered to the cap from 1992 to 2013 it could have saved $5.2 billion.
Suzanne Bates, policy director for the Yankee Institute for Public Policy, also served on the spending cap commission. Bates testified that she believed the 2015 move by the legislature to removed the unfunded liabilities from the spending cap was “a mistake.”
“Data provided to the spending cap commission by the Office of Policy and Management showed that spending outside the cap grew faster than spending kept under the cap,” Bates wrote in her testimony. “This is exactly what we do not want to see happen with the unfunded liabilities in our pensions.”