A Look at the Budget Surplus and What The Money Can Be Used For – NBC Connecticut

CT Mirror Budget Reporter Keith Phaneuf joins NBC Connecticut’s Mike Hydeck to talk about the Rainy Day Fund and the anticipated budget surplus including the rules for how it can be used.

Mike Hydeck: As the governor surrounds himself with new advisors in his next term, he will most certainly be pressured to use some of the staggering amount of budget surplus money on things like tax breaks and heating assistance and the aforementioned hero pay. And because of the way our budget is set up, when hedge funds do well in Connecticut, tax receipts go way up, which continues to happen despite the talk of a looming recession. But the governor is still hesitant to tap into those reserves. So how well off really are we budget wise? And why is the governor seemingly the only guardian of the surplus? Connecticut Mirror state finance reporter Keith Phaneuf has been covering state budget issues in depth for more than three decades. He joins us now with a little perspective. Keith, welcome back to Face the Facts.

Keith Phaneuf: Thanks for having me, Mike.

Mike Hydeck: So Republicans say with the skyrocketing fuel costs expected this winter because of the gas supply shortage, now is the time to start expanding the state Heating Assistance Program so people can start to budget before it gets cold. Can they legally do anything to tap into the Rainy Day End? Or is the governor just standing in the way?

Keith Phaneuf: Oh, there are all kinds of legal options. I have to tell you, I always remember Governor Rell used to always like 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 up too much of your time, just in the current fiscal year we are projected to run $2.8 billion dollars right now in the black. So we’re talking about a surplus of around 13 percent. The fiscal year doesn’t close until June 30. There’s more than enough money right there and there are other pots of money we can discuss. If you wanted to boost winter heating assistance to the level that energy advocates are saying, you basically have to go from about $90 million to $110 million. Again, we have a $2.8 billion surplus. Excuse me, we’d have to add $110 million. We’d have to go from $90 to $200 million. And I’m sorry to throw all the numbers. You’re talking about a very small fraction of the surplus. The reason people are hesitating is because we’ve never used state money for this winter heating assistance program before. LIHEAP, as it is known, Low Income Housing Energy Assistance Program has always been funded strictly with federal dollars. The problem is, since the pandemic, the federal government just really hasn’t always been putting up anywhere enough money to meet the demand. The Republicans are saying, let’s put up state money. If Congress comes through with more, we can always pull the state money back. But if Congress doesn’t come through with more, or even if we just leave things with a question mark, seniors and others will start rationing their groceries and their pharmaceuticals right now because they’ll be worried trying to make their heating budget stretch all winter.

Mike Hydeck: So in your reporting, you have said that this projected surplus in the state can maintain services, make long term debt payments, for how long? How long do you think, as we are now and again, we continue to have we just had another report out that said that there’s even more money coming in. So how long as we sit, money wise, can we pay our debts and pay our bills with the budget we have?

Keith Phaneuf: That really is the question Mike. And I’m sorry because I’m going to throw more numbers. And I’ll try not to have all your viewers just confused. But if you can sort of follow the bouncing ball, we start with our Rainy Day End. There’s $3.3 billion in there. And I’ll give you some perspective on all this on what they really stand for. There’s another $1.4 billion in federal pandemic relief that we’ve been specifically saving to help us with the next two fiscal years. So now we’re up to $4.7 billion. And then there’s the projected surplus for the current fiscal year. Even though we can’t put that in the Rainy Day Fund, there’s a mechanism called a carry forward where if we had to, we could carry forward appropriations from this year into the next biannual cycle to cover expenses. That’s $7.5 billion in options and here’s the perspective: that’s about 30 percent of the general fund. Thirty percent. I mean, so basically, you could run government for about 30 percent of the year if not a penny ever came in, which of course would never happen. To give you some other 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 built in deficit and had to raise taxes. All the chaos between about 2008, emptying the Rainy Day Fund, the borrowing the tax increases, all the chaos between 2008 and 2011, amounted to about 30 percent of the budget. No governor in modern history has had this many sandbags piled against the fiscal river like Governor Lamont has.

Mike Hydeck: Wow. Okay, so one last question. The 2017 bipartisan budget puts the safeguards in place so either party can’t raid the Rainy Day Fund after the fund is, you know, taken care of 15 percent of operating expenses, we have so much more. Do you think this has to be maybe readjusted in the future to maybe put that threshold higher than 15%? Can state lawmakers do that? Is that something on the table, would you say?

Keith Phaneuf: I think people will talk about it. I think because the surplus has gotten so large, nobody is going to be comfortable pushing it higher. But again, if you wanted to, and it’s funny, we’re gonna make money like, a talk of additional $100 million for heating assistance, or like you mentioned earlier, they’ve been talking about putting an extra $100 million, now it looks like it’s gonna be less, in the hero pay program. As big as you know, $100 million sounds to you and me, we’re talking about something that is about 1 percent of that huge cushion that I’m talking about. And in this case, the hero pay is a one time expenditure. You could do that just by taking that out of this year’s surplus. You wouldn’t need any special maneuvers to do it.

Mike Hydeck: It’s almost like tip money by comparison because the numbers are just so big. State budget guru Keith Phaneuf, thanks so much for joining us. Your reporting in CT Mirror is excellent and your expertise is very valued on Face the Facts. We appreciate you.