Interception follows diversion in Lamont fiscal strategy

First, it was diversion. Now it's "interception."

First, Gov. Ned Lamont diverted car sales tax revenue that his predecessor, Democrat Dannel Malloy, committed to the Special Transportation Fund (STF). Lamont's diversion completely undermined public confidence in the "lockbox" that is supposed to protect transportation funds in the STF and destroyed any possibility of tolls.

At the beginning of the budget process, Lamont announced that he would divert $1.2 billion of car sales taxes over five years, but, in face of a huge public outcry, he backed down, diverted only $58 million in the current budget and promised not to divert funds from the STF in future budgets, Scout's Honor.

Yet, now, we discover that Lamont is "intercepting" (diverting) revenue that is supposed to go into the General Fund and redirecting it to fund his off-budget public-private partnership with billionaire Ray Dalio.

The project with Dalio, Partnership for Connecticut Inc., may be a worthy effort to improve some of the state's failing schools, but Lamont is funding it in this most devious manner. Why? Because, if the revenue were placed in the General Fund and, then, used to fund the partnership, the funding would become part of General Fund spending that is subject to the state spending cap. That would push Lamont's spending over the cap.

When Lamont announced the partnership in April, he said the state's share of funding for fiscal 2020 would come from the fiscal 2019 surplus in the General Fund. Lamont reneged on this representation.

We wouldn't know this but for one legislator's close reading of the budget enacted in June. Rep. Vincent Candelora, deputy leader of the GOP Caucus in the state House of Representatives, discovered there was "no language in the budget to transfer FY19 surplus funding to FY20 for purposes of the Partnership," as he wrote to the Lamont administration in early July.

The administration wrote back confirming the absence of the language, acknowledging the switch in the source of funding from the FY2019 budget surplus to "FY20 resources," and admitting that the FY20 funding was being accounted for as a transfer from "the revenue schedule, rather than an appropriation."

If revenue is "transferred from the revenue schedule" and spent on an off-budget program such as the partnership, it is classified as a "revenue intercept" not subject to the spending cap.

Thus, we have "interception."

But, again, why is Lamont bothering with this arcane maneuver? The reason is that spending on operating costs is surging, driven primarily by fast-escalating wages of state employees, while, at the same time, the spending cap is imposing a tight limit on allowable spending increases.

On July 1 this year, almost all state employees received a 3.5 percent wage increase, and, for about half the state workforce, so-called step increases are recommencing this year. Annual step increases (which are neither merit-based nor associated with promotions) average about 3 percent, according to the non-partisan Office of Fiscal Analysis. The combined average increase across the workforce will amount to approximately 5 percent this year.

In contrast, the spending cap, which caps the increase in spending at the higher of the inflation rate or the rate of increase in personal income in the state, allows only a 3 percent increase this year in capped General Fund spending. Not all spending is capped. Non-operational spending, including debt service, pension fund contributions and federal grants (primarily, Medicaid and Medicare funding) is exempt.

State wages and the cost of active and retired employee health care represent roughly one-third of operating costs. With wages increasing 5 percent and health care more than 7 percent, there is little room for any other increased spending.

So, state employee wages are not only increasing at almost double the pace of personal income, i.e. wages, in the state's private sector, but they are putting a severe squeeze on services for most state citizens. This is neither fair nor sustainable.

Nevertheless, public sector union bosses refuse to moderate their demands, and Lamont and the Democrats refuse to scale back their spending habits.

While Lamont & Co. needed interception to keep General Fund under the spending cap, that left an equivalent hole in General Fund revenue, which Lamont & Co. filled by diverting the car sales tax revenue. So, interception and diversion go hand in hand.

With General Fund revenue still short, Lamont used several other ploys, including ignoring the law specifying that the Consensus Revenue Forecast (CRF) should serve as the official estimate of revenue for budgeting purposes. Lamont simply conjured an extra $180 million to add to the CRF. Sen. Len Fasano, leader of the GOP Senate Caucus, discovered this ruse hidden deep in the Democrats' budget.

This is how Lamont & Co. are exercising their absolute power in Hartford — intercepting, diverting and conjuring funds. We wouldn't know about most of this, but for the diligence of legislators like Vincent Candelora and Len Fasano.

Red Jahncke (Twitter: @RedJahncke) is president of The Townsend Group Intl. LLC, a Connecticut business consulting firm.

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