Inside the Connecticut Budget Process – Part 2

February 26, 2022

In addition to Part 1 of this topic, there are a couple of other key items that you have probably seen referenced but may find confusing: lapses, deficiencies, budget surpluses/deficits, and budget implementers.

First, what the heck is a lapse and a deficiency? On a basic level, a lapse is a surplus and a deficiency is a deficit (shortfall) in an appropriated account. Once the budget year starts (July 1), every appropriated account is tracked by staff in the Office of Policy and Management (OPM), the Comptroller’s Office and the legislature’s nonpartisan office (OFA) who compare what was budgeted to what it estimates will be spent for the year in each account. Agencies themselves are required by statute to produce and transmit monthly reports on expenditures and staffing (but many fail to do so or to share them as required). Below is a snippet from the Governor’s proposed budget bill showing one agency budget and its accounts. Note that brackets indicate a deletion from current law (the budget passed last year) and underlines indicate new language. The Governor is proposing changing the amount in the “Other Expenses” account. The reason for doing so is not explained in the budget bill but in the accompanying budget documents.

Unfortunately, although lots of fancy documentation might be produced by various budget staff, no one really knows what will ultimately be spent. Partly because one cannot foresee unknown future events that would affect spending. But it also is just a practical reality. Although not “acceptable,” analysts that “track” account spending generally take what the agencies report or tell them and transfer it to their own spending forecast. Analysts can review various other information sources but they can’t see inside the agency and a lot of effort often yields unilluminating results. One exception to this is spending such as Medicaid which is caseload driven and anyone can look at the same data and make an independent forecast. But even in these cases, agencies can do things internally like structure the timing of payments to increase or decrease spending over a timeframe which will be unknown to the analyst. Agency personnel have all sorts of interests (many understandable) in skewing their numbers/information. But even with the skewing of some numbers, the budget chief, let alone the head, of the agency doesn’t know what is truly happening with agency spending (except for very small agencies). This is because the lower level transactional people transfer information up the chain and it is accumulated. Maybe the information is solid and maybe it’s not. These numbers may or may not be questioned along the chain. The farther away one gets from the source, the more one is just repeating what has been reported by other people. Often those who are considered most knowledgeable really just have the best schtick.

Once recorded, all of the estimated lapses and shortfalls can be totaled to determine whether the state is meeting its budget target. The total can show that the state is spending more than it has budgeted but the state may not actually be in deficit. How can that be? Because at the same time that the spending is being tracked, all of the tax and revenue items that were set up in past years (such as the sales tax rate) or changed

for the current year are also tracked and compared to the original estimated revenue amount. And revenue can also be above or below the original targets each month. Comparing total estimated spending against total estimated revenue yields a state surplus or deficit. A snapshot below from OPM’s latest February 2022 estimate helps show this.

According to OPM then, the state for this current year is expected to take in $890.7 million more in revenue and spend $344.8 million less than was budgeted. (Note that the parentheses around the $344.8 figure above are probably a technical/printing error since parentheses indicate a shortfall when they are actually showing a surplus.) Buried in the total estimated Expenditures number as of February are eight agencies that are overspending their budgets by $94 million. Below is another snippet from OPM’s report:

This is a signal that these agencies will need supplemental appropriations by the legislature sometime before the legislative session is over in order to keep operating normally. These numbers are put into a bill known as the “Deficiency Bill” that looks like a mini budget bill and is usually passed alone. But like all bills can be lumped into another bill such as the budget bill or a budget implementing bill if the timing demands it. Or on rare occasions, all of these can be placed in one bill for a vote.

A lapse can also refer to a bottom line reduction to a budget. At the end of every General Fund and Special Transportation Fund budget there will be at least one lapse – the Unallocated Lapse - and often other programmatic lapses. The Unallocated Lapse reduces the size of the budget – in the case of the Governor’s recent budget bill (see below) by $129 million ($22.20B minus $22.07B). The unallocated lapse is a budgeting device that is not supposed to create any reductions to agency budgets. It is considered a “natural” lapse because in large budgets with a wide variety of accounts many accounts will not naturally spend all of their funding. Therefore, why over budget (which requires more taxes/revenue) if money will be left over?

But budgets will often include other lapses which are considered unnatural or “forced.” Forced lapses can be programmatic in nature such as the CREATES Savings Initiative Lapse (shown above) which allows the Governor to reduce funding to agencies “to achieve retirement, restructuring or efficiency savings” that are expected as a result of upcoming collective bargaining changes where more than 25% of state employees could retire. A lapse could also be “across-the-board” such as a “General Other Expenses Lapse.” These lapses are really budget cuts that are usually employed during tight budget years due to the undesirability of cutting specific programs within the budget. Budget language is necessary to give the Governor the unilateral authority to reduce the actual funds an agency receives to achieve the specified savings. In recent years, to avoid giving the Governor too much discretion to cut some agencies more than others, the Appropriations Committee has incorporated the anticipated lapse reductions directly into the line items.

So what’s a budget implementer bill? Unless there are only simple funding level changes to buy more or less of something in the budget (which never happens), every budget will require changes to existing law to implement the policies that are contained in it. For example, among many items, the Governor proposed expanding the property tax credit in his budget. Since the authority for the credit and its parameters are set in statute, the law must be changed to make the proposal work. If the budget passes without the implementing language the collection of revenue would remain unaffected since the property tax credit would not actually be expanded. He submitted this law change along with his budget in a separate “implementing bill.” The number of implementer bills is decided by the legislature as the budget develops during the session and varies from year to year depending on the number of changes needed and the amount of time available. There can be a “Health Implementer,” a “Public Safety Implementer,” etc. as needed.

But always there will be the dreaded “General Government” or “OPM” implementer. The negotiations over it will take countless hours and multiple weeks always under an atmosphere of uncertainty/tension. The players and the location are the same as those negotiating the budget who are already tired from doing that. It is often the last bill of the session taken up at the last minute or in special session after running out of time in the regular session. It undergoes a seemingly never-ending list of items for consideration and therefore a constantly expanding bill length. Anything that any member wants (from the majority that is, with maybe a few exceptions from the minority) can get thrown into it that has nothing to do with the budget. Legislative Leaders ultimately decide its contents with their direct staff handling much of the linkage to those members (or special interests) pleading or demanding that their dead bill, statutory change, or funding/program be included. These special inclusions are known as “rats.”

The General implementer can be hundreds of pages long. After being negotiated by a small number of people, it is dropped in the lap of the legislature to be voted on almost immediately. Members, especially from the minority, complain about the lack of time to read let alone comprehend what is in the bill. But the votes have been counted and its passage is preordained. The most the minority can do is complain and drag out the debate on the bill. If the bill is dropped on the last day of the session when it has to pass both chambers this gives the minority great leverage over debating until time runs out. This is a way that the minority can get a few rats of their own in exchange for keeping debate within a reasonable range.