As Connecticut lawmakers continue to formulate the Fiscal Year 2014-2015 budget, the state’s spending cap looms large. The flawed and highly restrictive rules under which the spending cap currently operates continue to create problems for responsible planning, the stability of the state budget, and maintaining investments that are crucial to families and the state’s quality of life. Specifically, these rules:
- Prevent the cap from achieving its goal of aligning growth in state spending with growth in the state's economy by ratcheting down public investments with each successive recession.
- Create barriers to restoring public investments that are reduced during economic downturns, even after state revenues rebound strongly after recovery. This reduces the state’s capacity to make the public investments needed to support our economy’s growth, and to meet residents’ needs in subsequent downturns.
- Create barriers to policies that would improve the fiscal health of the state, such as a) maximizing federal funds to help pay for state services and b) paying down the state’s unfunded pension liabilities.
- Result in volatility in allowable spending levels and the use of non-transparent budget techniques to circumvent the cap.
This report briefly explains how the cap works under current law, examine how the Governor’s proposed reforms would address flaws in the cap rules, and detail the policy and fiscal impact of two additional proposed reforms to the cap.