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Connecticut’s Spending Cap is in Need of Repair

Connecticut’s Spending Cap is in Need of Repair. Update February 2007. The spending cap will be an issue in FY2008 budget. The spending cap will allow growth of just 3.31 percent for FY2008

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Connecticut’s Spending Cap is in Need of Repair

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  1. Connecticut’s Spending Cap is in Need of Repair Update February 2007

  2. The spending cap will be an issue in FY2008 budget • The spending cap will allow growth of just 3.31 percent for FY2008 • “This level of permitted growth leaves little room for paying the state’s ongoing expenditures, never mind significant state reforms …” • FY2006-2008 proposed budget

  3. Growth allowed by cap is unrelated to economic cycle Personal Income Allowable Figure 2 (revised December 2006) Source: CBPP calculations of personal income data from Bureau of Economic Analysis and Connecticut Office of Policy and Management Rev 12/06

  4. Spending cap is overridden often ? ? Rev 12/06 Source: CBPP calculations of OFA data

  5. When economic growth is strong, cap is overridden • Over the past 20 years, Connecticut’s personal income grew 4.8 percent per year on average. • Since 1993, the state’s personal income growth was above average in 1997, 1998, 1999, 2000, 2001, 2005 and 2006. • In all of those years except 1997, the state exceeded the spending cap.

  6. Amount of spending that exceeded cap is substantial(not including debt reduction and transfers to budget reserve) $249 million in FY 1998 $591 million in FY 1999 $462 million in FY 2000 $292 million in FY 2001 $232 million in FY 2005 $553 million in FY 2006 Source: CBPP calculations of Office of Fiscal Analysis data

  7. Base of cap recently adjusted for some of this spending • For FY2007 the prior year’s base was increased by the $244 million spent on nursing homes • For FY2008 the base increased by the $125.5 million deposited in Teacher’s Retirement Fund • These adjustments were proposed by Governor Rell and approved by the legislature

  8. Changes that would address some of the cap’s problems Table 1 (revised Feb 2007) Amounts in millions, CBPP calculations

  9. Conclusion • The spending cap has weakened rather than improved Connecticut’s fiscal accountability • The cap has led to an increased use of budget practices that remove significant parts of the budget from the oversight of the Appropriations Committee. • Changing the cap to reflect more accurately Connecticut’s economic growth would both address the FY2008 problem and future problems.

  10. Appendix

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