Why CT’s fiscal guardrails matter now and for the future

February 1, 2023

House Speaker Matt Ritter: Why CT’s ‘volatility cap’ matters now and for the future

By Matt Ritter

 

We were late…very late…

 

In October 2017, I was serving my first term as the House Majority Leader and the General Assembly still had not adopted a new biennial state budget. It was supposed to have been accomplished by no later than June 30, 2017. 

 

The state Senate was tied 18-18 among Republicans and Democrats and the House of Representatives had 79 Democrats and 72 Republicans. There was no partisan way out. It was a frustrating and, frankly, an embarrassing situation because we hadn’t done our job. 

 

Beginning around Labor Day a group of eight legislative leaders (four Democrats - House Speaker Joe Aresimowicz, Senate President Martin Looney, Democratic Senate Majority Leader Bob Duff , and me; and four Republicans - House Minority Leader Themis Klarides Republican Senate President Len Fasano, House Deputy Minority Leader Vincent Candelora, and Senate Republican Appropriations co-Chair Paul Formica) had begun meeting to try to find a bipartisan solution to the budget fiasco.  

 

As the meetings turned more serious, I was tasked as the clerk or "young scribe" of the group (This was likely due to my age -I was definitely the youngest person in the room - but also out of necessity because we had kicked everyone out of the room, including the staff).

 

Outside the room my Hartford colleague, state Senator John Fonfara, briefed me on an idea he was working on to address the state's long-term fiscal health. He called it the "Volatility Cap."  It was a game changer. I instantly liked the idea and promised Sen. Fonfara that I would bring it to the group.

 

In short, the Volatility Cap sets a threshold for certain volatile revenue streams (like the income tax that can swing up and down from year to year). Any excess of these revenues must be deposited into the rainy day fund or into the state’s underfunded pensions for teachers and state employees. 

 

In addition, the goal was to pledge this Volatility Cap to holders of the state's general obligation bonds in the form of bond covenants so that it would be more difficult for the Legislature to change or alter the program. When the state issues bonds to borrow for large capital projects we pledge to bond holders that we will abide by budget control measures like the Volatility Cap. These bond covenants are what lower the cost of borrowing.

 

Ultimately, a budget deal was reached in late October and the Volatility Cap was included…

 

…And then the state's financial fortunes changed.

 

Fiscal Year

Payments to Rainy Day Fund, Teacher’s pension and State pension

Budget Reserve Fund

(Rainy Day)

2018

$988 million

$1.18 billion

2019

$1.3 billion

$2.5 billion

2020

$569 million

$3.01 billion

2021

$1.7 billion

$3.3 billion

2022

$4.3 billion

$3.3 billion

Source: Office of Fiscal Analysis

 

The Volatility Cap clearly exceeded our wildest dreams.  

 

Last year the state cut over $500 million in taxes, paid off billions of dollars of unfunded pension liabilities, poured over $200 million into pre-school education and children's mental health programs, sent child tax credits to tens-of-thousands of Connecticut families and still has a record $3.3 billion rainy day fund.

 

However, as Taylor Swift would say, I remember 2017 “All Too Well” (It’s a song reference for all of the non-Swiftey’s).

 

The bond covenants expire on June 30, 2023 and there are some who would prefer not to keep this and other important financial guardrails in place. 

 

We must stand firm.  

 

Before we start spending any money this year, let us honor the remarkable bipartisan accomplishments of 2017 and reaffirm these financial practices.  

 

We may need to make a tweak or two (for example, the rainy day fund may need to be a bit larger to get us through any recession) but we can continue our path of simultaneously helping Connecticut families today and stabilizing our future state finances.  

 

We owe it to our children and grandchildren to continue the legacy of the 2017 bipartisan budget and be a shining example of what a state or country can do when we come together, compromise and do the right thing.   

 

Matt Ritter Represents the 1st Assembly District of Hartford in the Connecticut House of Representatives. He is Speaker of the House.