2017 deal pushed by GOP leaders a fiscal success, political bust
In 2017, the Republican leadership in the state legislature had a choice between good public policy or self-serving politics.
Pushed most directly by Sen. Len Fasano of North Haven, who that year shared leadership with Democratic Sen. Martin Looney of New Haven in a Senate split 18-18, the Republicans chose good public policy.
The state had been a fiscal mess forever, it seemed, confronting repeated projected deficits. The Republicans, so close to gaining control of the legislature — Democrats held the House by only a few votes — could have let the Democrats own the problems. A politically wounded Gov. Dannel P. Malloy led the Democrats.
Their proposals rejected, Republicans could have walked away from the talks and used the fiscal problems as a hammer against Democrats in the 2018 election, with the governor’s seat up for grabs.
But Fasano, among others, saw an opportunity. Holding a stronger hand than the GOP had seen in years, Fasano wanted to pursue real structural change. When a handful of fiscally conservative Democratic legislators joined the reform movement, the Republican leadership had the leverage to pursue a deal that ended a nine-month standoff.
Among the structural changes was approval of a volatility cap, restricting the legislature from spending all the income tax receipts when a strong market sent investment earnings soaring. Such volatility had kept state budgets on a boom-and-bust cycle for years.
The General Assembly also finally approved by the required three-fifths margin the language that implemented the constitutional spending cap Connecticut voters had approved back in 1992, after approval of the income tax. It prohibits legislatures from authorizing general budget increases that exceed the greater of the average increase in personal income or the increase in inflation.
In approving that budget, the legislature also imposed a $2 billion cap on bond authorizations going forward.
I was thinking of this last week when Moody’s Investors Service announced that, for the first time in two decades, it was upgrading its ranking on Connecticut bonds to “high quality” from “upper medium.” That should mean substantial savings on billions of dollars of borrowing costs.
Thanks largely to the caps, particularly the volatility cap, a budget reserve that stood at about $200 million at the time that budget deal was struck, now is up to $3 billion — a 15-fold increase. It places the “rainy day” fund at its legal maximum of 15% of spending. With the state projecting an $800 million surplus when the fiscal year ends June 30, the excess, by law, would be directed at the state’s underfunded teacher or state worker pension funds.
Moody’s has taken note.
While a highly successful fiscal policy, the 2017 deal did nothing for the Republicans politically. Dragged down by former President Donald Trump’s unpopularity in the state, and unable to run against a state budget that had their fingerprints all over it, Republicans watched Democrats increase their margins in the 2018 and 2020 elections, with Democrats now controlling the Senate 24-12 and the House 97-54.
Meanwhile in 2020 the Republican candidate, Bob Stefanowski, ran on a fiscally irresponsible and impractical proposal to eliminate the income tax. He lost to Democrat Ned Lamont.
Fasano did not seek reelection in 2020.
“I was very proud to see that rating,” said Fasano when I called him last week. “We took the time to get it right, and we got it right. It shows what compromise, what bipartisan agreements can do.”
He shared credit with the other legislative leaders at the time: Looney, Democratic Senate Majority Leader Bob Duff, Democratic House Speaker Joe Aresimowicz, Democratic House Majority Leader Matthew Ritter, and Fasano’s counterpart in the House, Republican Minority Leader Themis Klarides.
“There were members on the Republican side who said, ‘Let them (Democrats) destroy the state with their budget and let them defend that,” Fasano recalled. “It may have been good political strategy, but it was not in the interest of the state.”
Asked what worries him, Fasano replied, “The first concern is that the majority party is going to believe that they can spend all that money and they will seek to get around the caps we put in. My second fear is that with union contracts coming up, and with that surplus and the federal relief money, they are going to we want more for their contracts.”
“We could end up back where we were,” he said.
In that regard the Democratic governor, Lamont, may be Fasano’s best hope. Thus far Lamont has proved to be more of a fiscal conservative than the last two Republican governors, John Rowland and M. Jodi Rell. Working with Democratic legislatures, they were happy to spend and accommodate the unions when good times were rolling. Neither tried to push the legislature to address the timebomb that was the underfunded state pensions. They didn’t get a spending cap established.
Lamont, so far, has pushed back against proposals to raise taxes and his budget plan does not include labor raises, though that will prove a tough hill to hold.
Fasano sees Connecticut as having a great opportunity to improve its long-term debt outlook, which could pay big dividends in future economic growth.
Lamont said something similar.
“It provides outside validation that Connecticut continues to make prudent financial decisions that set the state up for growth now and into the future,” he said after the bond-rating announcement.
Fasano and Lamont should have lunch.
Paul Choiniere is the editorial page editor.