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Voices Speaking

January 17, 2018

The State Economy, the State Budget and the State of Our Children

Roger Senserrich

The budget passed by the General Assembly in October was much more than a budget document. In addition to severe cuts, the General Assembly also imposed sweeping changes to the state's constitutional spending cap along with several new budget restrictions. These rules, together, could dramatically weaken Connecticut's ability to make children and families a priority, and hamper the strategic investments key to long-term economic growth.

The coming legislative session will be crucial. These four new fiscal restrictions (bond cap, spending cap, volatility cap and bond lock) have the potential to make all our efforts moot. Unless they are addressed, fixed costs will crowd out spending in children and families, with the legislature constrained to only austerity budgeting.

In our recent webinar,  Ellen Shemitz, Executive Director at Connecticut Voices for Children, and Ray Noonan, Associate Policy Fellow, will explore these pressing budgetary issues before the state legislature this session. On the agenda:

  • The state of Connecticut´s economy, and why it matters for the state budget.
  • The state of Connecticut´s budget, with an overview of revenues and liabilities.
  • The state of our children, and how the state has shifted away from its priorities.
  • The new fiscal restrictions in the budget, and how they might impede future growth.
  • How to chart a path towards fact-based, equitable solutions.

 

You can download the slides without the presentation below:

 

Issue Area:
Budget and Tax
Tags:
bond lock, budget, Connecticut, restrictions
January 25, 2018

A Balanced Approach to Fiscal Stability and Economic Growth

Roger Senserrich

On Wednesday, January 24th, Ellen Shemitz, Executive Director at Connecticut Voices for Children, testified in front of the Commission on Fiscal Stability and Economic Growth, urging support for strategic investments that will spur growth in the state economy, create a prepared workforce, and fuel a competitive business environment.

Shemitz urged the Commission to reject an austerity approach to the state budget deficit, explaining that further cuts to critical services and delays to infrastructure repairs would undermine fiscal stability and impede the state’s ability to compete with its neighbors. She stated: “Only by investing in more inclusive and shared prosperity can we ensure stronger and more sustainable economic growth.”

Over the last few weeks, the Commission has discussed the possible causes of Connecticut's fiscal crisis, looking for a way forward. In her presentation, Shemitz laid out the three main causes of the persistent budget deficits: slow economic growth, an outdated tax system, and growing fixed costs. To solve the crisis, she called for an Opportunity Agenda that would prioritize inclusive economic growth, child and family well-being, and equity and excellence in education.

Connecticut´s economic recovery after the Great Recession has been unusually slow, with job growth trailing behind most of the nation and economic output only recently returning to pre-2008 levels. 

Slow economic growth is only part of the problem. Connecticut´s tax system is in many ways outdated, failing to keep up with the pace of changes in the economy. Shemitz highlighted the need for changes across sales, business, and property taxes to assure adequate state revenue and to improve tax equity.

Finally, the growth of fixed costs has crowded out other spending, with non-functional costs (pension contributions for state workers and teachers, health care and pensions for retirees, and debt service) now constituting a larger share of the budget than services for children and families (including education, healthcare, and early childhood).

While the steep rise in fixed costs results from decades of financial mismanagement, the full impact is only now being felt. Connecticut Voices for Children in concert with students from the Yale Law School Legislative Clinic have created financial models to show that existing sources of revenue simply cannot meet the entirety of the state’s obligations. Or as Shemitz pointed out, “Connecticut cannot cut its way out of this crisis. The only path forward is to grow the economy: to grow our way to fiscal health.”  

Shemitz called upon the Commission to recommend changes to recently enacted fiscal constraints that she warned would prevent strategic investments in state infrastructure, public education, and core city revitalization. She urged the Commission to recommend repeal of new legislation concerning bond covenants: a so-called bond lock that takes budgetary and legislative power away from the state’s elected representatives and gives it to Wall Street. “We need to use all of the available tools possible to prioritize inclusive economic growth and open the doors of opportunity," said Shemitz.

You can watch the full presentation below. The slides are available here

Issue Area:
Budget and Tax
Tags:
bond lock, budget, deficit, fiscal
February 7, 2018

Statement on the Governor's Budget Proposal: a Call for a New Direction

Ellen Shemitz, J.D.

This past Monday, the Governor released an overview of his recommended revisions to the FY 2019 budget, with a focus on revenue and spending changes to achieve balance. Ellen Shemitz, Executive Director of Connecticut Voices for Children issued the following statement in response:

The long-term fiscal stability and health of our state depend upon economic growth that affords shared prosperity to families, businesses, and communities. This kind of growth can only occur in a state that has a competitive business environment, a prepared workforce, a commitment to race equity and a fiscally sound state government.

The state budget announced Monday by Governor Malloy includes some welcome and decisive steps to narrow our long-term deficit, move the state toward fiscal stability, and tackle some of our pressing infrastructure needs. The proposal, however, fails to recommend a number of structural changes essential to grow the economy and move toward sustainable, shared prosperity.

Last year’s budget created substantive and harmful restrictions on economic growth through the combined effect of a newly defined spending cap, volatility cap, bond cap and bond lock. To build a vibrant, inclusive economy and remain competitive, our state needs to make strategic investments in transportation, education, healthcare, workforce development, and early childhood: the very kind of bold investments that our neighboring states have already launched. To the south, New York City is moving toward universal free preschool for all three-year-olds. To the east, Rhode Island is offering free community college. Connecticut must similarly invest and innovate or be left behind.

We remain hopeful the Governor will offer a bold call for investment and innovation in today's budget address. We hope the Legislature will address some of the missing elements in Monday's proposal, such as full restoration of the Earned Income Tax Credit, modernization of our tax system, and targeted state funding to assure equity in educational opportunity.

But first, both the Executive Branch and Legislative Branch need to free themselves from the unintended consequences of last session’s fiscal restraints. They need to amend the spending cap, volatility cap, bond cap and bond lock so that our state is free to meet today’s fiscal, economic and social challenges.

Working together, we can open pathways to opportunity for every child as we build a solid, inclusive economic foundation that benefits all of our residents and communities.

Issue Area:
Budget and Tax
Tags:
bond lock, budget, investments, tax
March 12, 2018

Fixing Connecticut’s Budget Woes? Tread Carefully When Implementing New Fiscal Controls

Kim S. Reuben, director of the State and Local Finance Initiative at the Urban-Brookings Tax Policy Center, recently published an in-depth analysis of the risks and potential pitfalls that Connecticut´s new fiscal restrictions, and especially the Bond Lock, have for the state. 

Late last October, Governor Dan Malloy approved a two-year $40.2 billion budget for Connecticut more than 100 days after the fiscal year began. A strongly bipartisan effort, the package included spending cuts, new taxes and fees, and new fiscal controls meant to stabilize and improve the state’s financial future.

Many of these new controls are commendable, but if Connecticut implements strict budget rules without exceptions for recessions and other unanticipated events they could create a new form of state fiscal risk (...)

Based on our research, addressing tax volatility and enacting rules to encourage saving during boom periods are good steps for budget stability. However, locking in strict budget rules without allowing for exceptions under difficult economic conditions, may be short-sighted. And enforcing these rules through bond documents could be especially risky. 

You can read the full piece on TaxVox, the Tax Policy Center’s blog. As you know, here at Connecticut Voices we have made repealing or delaying the Bond Lock our main policy priority for the year. We will be hosting an event about the Bond Lock on March 14th - don´t forget to register!

Issue Area:
Budget and Tax
Tags:
bond lock, budget, restrictions, Tax Policy
March 30, 2018

Call to Action - Bond Lock Hearing Monday, April 2 - H.B. 5590

The Finance Committee will hold a hearing this coming Monday, April 2, to discuss a slew of new fiscal bills, including one to amend the Bond Lock: H.B. 5590, "An Act Concerning Covenants and the Bond Issuance Cap".

HB 5590 would not fully repeal the existing Bond Lock, rather it would partially delay implementation. Under this proposal, bonds issued after May 15, 2018, would include a covenant locking in the volatility cap. Bonds issued after the end of the session (July 1, 2019, onwards) would lock in the spending cap and bond cap.

While an improvement over current law, further change is needed. We are calling on the Finance Committee to amend the bill to:

  1. Delay the effective date of all provisions of the Bond Lock until July 1, 2019.
  2. Study and issue a report on the impact of the Bond Lock, with a committee hearing on the same, prior to the new effective date.

We urge you to join us in requesting passage of an amended bill. Inaction is not an option. Existing law poses real threats to our state. If implemented, the Bond Lock would:

  • Risk billions of dollars in cuts to social services and other crucial programs for children and families in the state.
  • Create uncertainty regarding Connecticut's fiscal health, potentially damaging our credit rating and increasing our borrowing costs.
  • Leave Connecticut powerless to respond to emergencies. We do not know what the federal government is going to do regarding funding. We don't know if a natural disaster is coming. With the Bond Lock, we will know that we cannot address any of these challenges without facing serious penalties.

We ask you to testify on Monday, April 2 and urge the Finance Committee to break the Bond Lock.

  • WHAT: Finance, Revenue and Bonding Committee public hearing
  • WHEN: Monday, April 2, 2018 at 10:30 A.M.
  • WHERE: Room 2E, Legislative Office Building, 300 Capitol Avenue, Hartford.
  • HOW TO TESTIFY: A lottery will determine public speaker order; sign up is from 8:30 A.M. to 9:30 A.M. in the first floor atrium of the LOB.  You can also email written testimony to FINtestimony@cga.ct.gov.

About the Bond Lock:

The Bond Lock is a provision included in the Fiscal Year (FY) 2018-2019 budget aimed at restricting changes to Connecticut's budget rules. It stipulates that whenever Connecticut issues a bond for a two-year period beginning in May, it must vow not to change three new spending and revenue restrictions—the spending cap, volatility cap, and bond cap— for the life of the bond (typically 10 years) except in extraordinary circumstances.

Because bonds are considered contracts, Connecticut would be legally bound to maintain these spending and revenue restraints despite what future Governors or legislatures might find to be in the best interests of the state. Any effort to break the covenant would invite litigation and risk significant penalties.

The fiscal restrictions that the Bond Lock cements into place all have significant flaws, threatening state investments necessary to build thriving communities. By making it virtually impossible to change any of these restrictions for more than a decade, the Bond Lock limits the state’s ability to address both existing and unanticipated challenges, today and into the future.

For more information about the Bond Lock, download our Bond Lock FAQ

Issue Area:
Budget and Tax
Tags:
action alert, bond lock, budget, cap, spending, tax
April 4, 2018

What is the Bond Lock?

On March 14th Connecticut Voices for Children held our ¨Breaking the Bond Lock" roundtable, where we explained in great detail the potential impact that this fiscal restriction will have on children and families. You can watch the presentation below. 

 

For a full analysis on the Bond Lock, a FAQ, and supporting materials, check our publications here

Issue Area:
Budget and Tax
Tags:
bond lock, budget, fiscal, tax

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