Facing the facts: an overview of the budget surplus and where the money is going

Facing the facts: an overview of the budget surplus and where the money is going

CT Mirror Budget reporter Keith Phaneuf joins NBC Connecticut’s Mike Hydeck to talk about the Rainy Day Fund and the projected budget surplus, including rules for its use.

mike hydeck: As the governor surrounds himself with new advisers in his next term, he will most certainly come under pressure to use some of the staggering amount of budget surplus on things like tax breaks and heating assistance and the aforementioned hero salary. And because of the way our budget is set up, when hedge funds do well in Connecticut, tax revenues skyrocket, which continues to happen despite rumors of an impending recession. But the governor is still reluctant to dip into these reserves. So, how comfortable are we really in terms of budget? And why does the governor seem to be the sole custodian of the surplus? Connecticut Mirror state finance reporter Keith Phaneuf has covered state budget issues in depth for more than three decades. He joins us now with a little hindsight. Keith, welcome to Face the Facts.

Keith Phaneuf: Thanks for inviting me, Mike.

Mike Hydeck: So Republicans say that with skyrocketing fuel costs expected this winter due to gas supply shortages, now is the time to start expanding the state’s heating assistance program to so people can start budgeting before it gets cold. Can they legally do anything to tap into the Rainy Day Fund? Or is the governor just getting in the way?

Keith Phaneuf: Oh, there are all sorts of legal options. I have to tell you, I always remember Governor Rell always liked to say that money is fungible, the state budget is so fungible, it’s flexible, and that’s definitely the case here. Without trying to take too much of your time, in the current fiscal year alone, we currently expect to record $2.8 billion in the black. We are therefore talking about a surplus of approximately 13%. The fiscal year does not end until June 30. There’s more than enough money in there and there are other pots of money we can discuss. If you wanted to increase winter heating assistance to the level announced by energy advocates, you would basically have to go from about $90 million to $110 million. Again, we have a surplus of $2.8 billion. Excuse me, you would have to add $110 million. We would have to go from 90 to 200 million dollars. And I’m sorry to throw all the numbers. You are talking about a very small fraction of the surplus. The reason people are hesitant is because we’ve never used state money for this winter heating assistance program before. LIHEAP, as it is called, the Low Income Housing Energy Assistance Program has always been funded strictly with federal dollars. The problem is that, since the pandemic, the federal government has not always invested enough money to meet the demand. Republicans say let’s put in some state money. If Congress comes up with more, we can always get the money back from the state. But if Congress doesn’t come up with more, or even if we leave things with a question mark, seniors and others will start rationing groceries and pharmaceuticals right now because they’ll be worried about trying to stretch their heating budget. Winter.

Mike Hydeck: So in your report you said that this projected surplus in the state can sustain services, make long-term debt payments, for how long? How long do you think, as we are from time to time, we keep getting another report that says there’s even more money coming in. So how long, in terms of money, can we pay our debts and pay our bills with the budget we have?

Keith Phaneuf: That’s really the question Mike. And I’m sorry because I’m going to throw more numbers. And I’ll try not to confuse all of your viewers. But if you can somehow keep up with the bouncing ball, we’re starting with our Rainy Day Fund. There’s $3.3 billion in there. And I’m going to give you a perspective on all of this on what they really stand for. There is an additional $1.4 billion in federal pandemic relief that we have specifically saved to help us over the next two fiscal years. So now we’re at $4.7 billion. And then there’s the projected surplus for the current fiscal year. Even though we can’t put this into the Rainy Day Fund, there is a mechanism called rollover where, if we had to, we could roll over this year’s appropriations to the next semester cycle to cover expenses. It’s $7.5 billion in options and here’s the perspective: it’s about 30% of the general fund. Thirty percent. I mean, so basically you could run the government for about 30% of the year if not a penny ever came in, which of course never would. To give you another perspective, when we went through what economists called the Great Recession in 2008 and 2009, we emptied a Rainy Day Fund, we borrowed a billion dollars, and then Governor Malloy inherited a accumulated deficit and had to raise taxes. All the chaos between about 2008, the draining of the Rainy Day Fund, the borrowing of tax increases, all the chaos between 2008 and 2011, was about 30% of the budget. No governor in modern history has had as many sandbags stacked against the fiscal river as Governor Lamont.

mike hydeck: Wow. Okay, so one last question. The 2017 bipartisan budget put safeguards in place so that neither side could plunder the Rainy Day Fund after the fund has, you know, covered 15% of operating expenses, we have so much more. Do you think that this may need to be readjusted in the future to perhaps raise this threshold to more than 15%? Can state lawmakers do this? Is that something on the table you say?

Keith Phaneuf: I think people will talk about it. I think because the surplus has become so large, no one will be comfortable pushing it higher. But again, if you wanted to, and it’s funny, we’re going to make money like, talk about another $100 million for heating assistance, or as you mentioned earlier, they talked about putting another $100 million, now it looks like it’s going to be less, into the hero pay package. As big as you know $100 million sounds to you and me, we’re talking about something that’s about 1% of this huge cushion I’m talking about. And in this case, the hero’s remuneration is a one-time expense. You could do that simply by taking that out of this year’s surplus. You wouldn’t need any special maneuvers to do this.

Mike Hydeck: It’s almost like tip money in comparison because the numbers are so big. State Budget Guru Keith Phaneuf, thank you so much for joining us. Your reporting in CT Mirror is excellent and your expertise is much appreciated on Face the Facts. We appreciate you.

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