When Connecticut has no enacted budget, does the Governor have the legal authority to reduce special education excess-cost grants, withhold municipal revenue sharing, and adjust the motor vehicle mill-rate tax cap on his own?

Plain-English summary

Connecticut entered fiscal year 2018 (July 1, 2017) without an enacted budget. Governor Malloy issued Executive Order 58, directing OPM to authorize spending periodically, and later announced a Revised Resource Allocation Plan that, among other things, reduced special education excess-cost grants to FY 2017 levels, eliminated municipal revenue sharing grants, and based motor vehicle property tax grants on a 37-mill cap rather than the new statutory 32-mill cap. Senator Fasano asked whether the Governor had legal authority to make these changes.

The AG's analytical anchor is State v. Staub, 61 Conn. 553 (1892), Connecticut's only Supreme Court case on executive spending without enacted appropriations. Staub establishes two principles: (1) where existing law requires an expenditure, the executive has the authority and obligation to spend, even without an appropriations act, and (2) the executive must continue funding "essential services of government" during a budget gap. To these the AG added a third practical rule: the Governor cannot spend money the state does not have, because he has no authority to raise revenue.

Applying those principles, the AG worked through the three issues. The Excess Cost Grants are calculated under a statutory formula in § 10-76g(b). The proportional-reduction subsection (§ 10-76g(d)) had expired and did not cover FY 2018. There was no statutory basis for the Governor to reduce grants to their FY 2017 levels; under Staub, the Governor would be obligated to pay grants at the full formula amount when the February and May payment dates arrived (assuming the state had the money). The MRSA grants are funded by a dedicated portion of the sales tax, which had not yet accrued in the special account. The Governor could properly decline to pay grants the state did not have funds for, but if the funds materialized he would be obligated to pay them in statutory priority. The motor vehicle mill-rate piece was the most legally troubled: the statute used a 32-mill threshold, but the Governor's plan applied 37 mills. The AG suggested a court might conclude this is not a choice the statute permits the Governor to make.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. The 2017 budget impasse was eventually resolved, and the legal questions discussed here may have been answered by later legislative or judicial action. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Connecticut's constitutional framework gives the legislature the appropriations power, but expects the executive to keep the government running. When the legislature fails to enact a budget, the executive faces a pure conflict between two duties: take care that the laws be faithfully executed (which includes laws requiring expenditures) and refrain from spending without an appropriation.

State v. Staub (1892) is the only Connecticut Supreme Court case directly addressing this. The Court there held that "the existence of a law requiring an expenditure to be incurred is an appropriation of money for that purpose" when the legislature has failed to act. The Court also held that "essential operations of government must prevail against a rule of procedure" in applying tax revenues. From those principles, the AG added the necessary practical limit: the Governor cannot spend money the state lacks, because the legislature alone has the taxing power (citing Lublin v. Brown and State v. Murphy).

The AG also referenced Op. 1991-019, Op. 1991-033, and Op. 2003-012, all of which had recommended continuing resolutions during prior budget gaps because the Staub standard "suffers from a significant lack of clarity, rendering the choice among spending options difficult to make and support."

On Excess Cost Grants. Section 10-76g(b) requires the State to pay special education costs above a per-pupil threshold (4.5x district per-pupil cost). Applications come in by December 1; payments go out in February (75%) and May (25%). Subsection (d) had historically allowed proportional reductions when appropriations were less than the formula required, but only for specified fiscal years. The legislature had repeatedly extended the proportional-reduction provision (e.g., P.A. 11-48; P.A. 13-247; P.A. 15-5), but as written it did not cover FY 2018 and there were no FY 2018 appropriations against which to calculate a reduction. The Revised Plan reduced grants to their FY 2017 levels, but no statute gave the Governor that power. Under Staub, the AG advised, the Governor would have to pay the full formula amount when the February and May 2018 payments came due. The opinion also noted these payments were not yet due, so circumstances could change.

On Municipal Revenue Sharing Account (MRSA) grants. Section 4-66l establishes the MRSA as a dedicated, non-lapsing account funded by 7.9% of sales tax revenue (§ 12-408(1)(K)(ii)). Section 4-66l(b) sets the spending priority: (1) Motor Vehicle Property Tax Grants, (2) Select PILOT Grants from § 12-18c, (3) MRS Grants. Sections 4-66l(c) and (d) set the specific grant amounts to specific municipalities. The Revised Plan eliminated MRS Grants and Select PILOT Grants. The AG accepted that, since the MRSA had no funds at the start of FY 2018, the Governor could properly decline to pay grants for which money was not available. But once funds accumulated through sales tax deposits, the AG suggested, the Governor would be obligated to pay them in priority order.

On Motor Vehicle Property Tax Grants. Section 4-66l(c) provides for grants to municipalities with mill rates greater than 32 mills, in amounts equal to the difference between actual taxes levied on motor vehicles and what the levy would have been at 32 mills. Effective July 1, 2017, § 12-71e capped the local motor vehicle mill rate at 32 mills (down from 37). The Revised Plan would have reimbursed only municipalities with mill rates greater than 37, leaving municipalities at 32-37 mills with nothing. The AG's analysis was the most cautious here: the Governor's choice may have been a reasonable policy decision in light of insufficient funds, but it does not appear to be one the statute on its face authorizes. A court might conclude that the statute requires either full payment at 32 mills or, if funds are insufficient, a pro rata reduction across all eligible municipalities, not selective use of the prior 37-mill threshold.

The AG closed with two important caveats. The first is institutional: these are issues that could become litigation, and the AG must defend the State if the Governor's actions are challenged. The second is doctrinal: Staub is 125 years old, has not been applied in modern times in the absence of an entire State budget, and how the modern Supreme Court would apply it is uncertain. The Governor's actions might survive a court challenge despite the analytical concerns the AG raised.

Governor Malloy's October 3, 2017 letter, included with the opinion, reframed the same issues in terms of his obligation to expend funds within available revenue: he would meet statutory spending obligations when they came due and adjust the EO 58 plan as fiscal circumstances developed.

Common questions

Did the AG say the Governor's actions were unconstitutional?

No. The AG repeatedly emphasized uncertainty: how a court would resolve these issues "cannot be predicted with certainty," the Governor's actions "may be defensible in a court challenge," and the analysis was "necessarily qualified by the uncertainty inherent in the law." The AG identified specific actions where the statutory authority appeared weak (the 37-mill choice in particular) and others where the Governor's choice was more defensible (declining to pay grants when funds were not available).

What does Staub actually require the Governor to do during a budget gap?

Two things. First, where existing statutes require an expenditure, the Governor must spend, even without an appropriations act. The AG quoted: "the existence of a law requiring an expenditure to be incurred is an appropriation of money for that purpose." Second, the Governor must keep "essential operations of government" running. Both are subject to the practical limit that the Governor cannot spend money the state does not have.

Why did the AG focus so much on the 37-mill versus 32-mill choice?

Because the statute speaks specifically. Section 4-66l(c) ties the grant to the 32-mill threshold. The Governor's substituting 37 mills was not a refusal to spend money the state did not have; it was an affirmative choice to use a different statutory threshold. That kind of choice was harder to justify under Staub, which authorizes following statutory mandates, not modifying them.

What about the Governor's obligation to keep schools and municipalities functioning?

The AG did not dispute that the Governor faces real practical pressures during a budget gap. The opinion specifically acknowledged "the formidable task the Governor faces, in the exercise of his constitutional obligation to take care that the laws are faithfully executed, to maintain the effective operations of state government in the absence of a legislatively enacted budget." But that obligation does not, in the AG's view, give the Governor freestanding authority to override specific statutory grant formulas.

Citations

Statutes and executive orders

• Conn. Gen. Stat. § 10-76g (special education excess cost grants)
• Conn. Gen. Stat. § 10-76g(b) (formula), (c) (subject to available appropriations), (d) (proportional reduction)
• Conn. Gen. Stat. § 4-66l (Municipal Revenue Sharing Account)
• Conn. Gen. Stat. § 4-66l(b) (priority of payments)
• Conn. Gen. Stat. § 4-66l(c) (Motor Vehicle Property Tax Grants, 32-mill threshold)
• Conn. Gen. Stat. § 4-66l(d) (MRS grants by municipality)
• Conn. Gen. Stat. § 4-66o (sales tax receivables authority)
• Conn. Gen. Stat. § 12-71e (motor vehicle mill-rate cap)
• Conn. Gen. Stat. § 12-408(1)(K)(ii) (sales tax deposits to MRSA)
• Conn. Gen. Stat. § 12-18c (Select PILOT Grant account)
• P.A. 11-48; P.A. 13-247; P.A. 15-5 (proportional reduction extensions)
• Executive Order No. 58 (June 30, 2017)

Cases and prior opinions

• State v. Staub, 61 Conn. 553 (1892) (executive spending without appropriations)
• Lublin v. Brown, 168 Conn. 212 (1975) (legislature has taxing power)
• State v. Murphy, 90 Conn. 662 (1916) (same)
• Conn. AG Op. No. 2003-012 (July 16, 2003)
• Conn. AG Op. No. 1991-033 (Nov. 4, 1991)
• Conn. AG Op. No. 1991-019 (June 7, 1991)

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Original PDF: https://portal.ct.gov/-/media/ag/opinions/2017/2017-08_fasano_opinion_response_gov_auth-pdf.pdf?rev=032b5897daf344bfa2ecc5152821d48a

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

55 Elm Street
P.O. Box 120
Hartford, CT 06141-0120

GEORGE JEPSEN
ATTORNEY GENERAL

Office of the Attorney General

State of Connecticut
October 3, 2017

The Honorable Leonard A. Fasano
Senate Republican President Pro Tempore
Legislative Office Building
300 Capitol Avenue, Suite 3400
Hartford, CT 06106

Dear Senator Fasano:

You have asked for an opinion on the following questions about the Governor's authority to direct the expenditure of funds by executive order in the absence of legislatively enacted appropriations: Does the Governor have the authority to (1) reduce the Excess Cost grants for state aid for special education provided under Conn. Gen. Stat. § 10-76g; (2) withhold funding under the Municipal Revenue Sharing program established by Conn. Gen. Stat. § 4-66l; and (3) adjust the motor vehicle mill rate tax cap for calculating motor vehicle property tax grants under Conn. Gen. Stat. § 4-66l? We have also received the attached letter from Governor Malloy dated October 3, 2017, responding to your concerns.

Background

As you indicate, the legislature has not yet enacted a budget for the fiscal years 2018-2019 biennium. On June 30, 2017, the Governor issued an executive order to ensure the continued operations of State government in the absence of an enacted budget, providing that:

all expenditures for the period of July 1, 2017 through the date of approval of an appropriations act for the fiscal year commencing July 1, 2017, shall be authorized only upon the Governor's approval of a request by the Office of Policy and Management for periodic spending authorizations in accordance with this executive order.

Executive Order No. 58, ¶ 4 (June 30, 2017).

On August 18, 2017, the Governor announced a Revised Executive Order Resource Allocation Plan (Revised Plan). The Revised Plan was described as "a flexible document, subject to adjustment as the year progresses."

The leading and only Connecticut Supreme Court case on the executive branch's authority to spend in the absence of enacted appropriations is State v. Staub, 61 Conn. 553 (1892). As we have opined on several occasions in the past, Staub offers some basic guiding principles. See A.G. Op. No. 2003-012, 2003 WL 21689608 (July 16, 2003); A.G. Op. No. 1991-033, 1991 WL 529795 (Nov. 4, 1991); A.G. Op. No. 1991-019, 1991 WL 529751 (June 7, 1991). In Staub, the Court faced the circumstance where the legislature had failed to enact appropriations. It held that, in the absence of an appropriation, "the existence of a law requiring an expenditure to be incurred is an appropriation of money for that purpose. . . ." 61 Conn. at 563. The Court explained:

The omission by the general assembly to pass any special appropriations has been so long continued that it must be regarded as intentional. The general assembly is always presumed to know all the existing statutes, and the effect that its action or non-action will have upon any one of them; and it is always presumed to have intended that effect which its action or non-action produces. The neglect of the assembly of 1891 to observe the mandatory provisions of the special appropriation act may be construed in one of two ways: It may be held to be equivalent to an affirmative enactment suspending the prohibitory parts of the act, or it may be construed as a design by the general assembly to prevent the carrying on of the state government. The latter is something altogether too extravagant to be admitted. We think the former is the proper meaning, and that the omission by the general assembly to pass any appropriation bills, being intentional, operates, and was intended to operate, as a legislative construction that all the prohibitions contained in the act were suspended.

Id. at 566-67. Thus, the first principle that Staub establishes is that, where the legislature by statute has required the expenditure of monies, the executive, even in the absence of an enacted budget, has the authority to expend those monies.

The Court further observed:

Divers laws impose, by imperative command, on executive, administrative, and judicial officers, duties essential to the preservation of order, the administration of justice, and the protection of property. Many of these duties are not imposed by statute, but their performance is demanded by the constitution, and is, of necessity, involved in the existence of a government.

Id. at 565. Therefore, the Court concluded, "[t]he command to provide for the essential operations of government must prevail against a rule of procedure in applying the funds raised by taxation for the support of the government." Id. at 566. Staub's second principle is that the "essential services of government must continue and must continue to be paid for in the absence of a budget." A.G. Op. No. 1991-019, at 4; accord A.G. Op. No. 2003-012, at 2.

To the two Staub principles must be added another important, albeit obvious, one. Because the Governor has no authority to raise revenues unilaterally, he cannot spend monies he does not have. See Lublin v. Brown, 168 Conn. 212, 220-21 (1975) (the power to tax is vested in the legislature); State v. Murphy, 90 Conn. 662, 666 (1916) (same).

But these principles come with several cautions. As we have previously noted:

The Staub decision has not been applied in modern times in the absence of an entire State budget. Practical problems would inevitably arise in applying the Staub standard. The Staub standard itself suffers from a significant lack of clarity, rendering the choice among spending options difficult to make and support. The necessity to select expenses actually allowable could cause uncertainty and confusion in the operation and delivery of State services.

A.G. Op. No. 1991-019, at 5. For this reason, we have in the past strongly advised that a continuing resolution be adopted until a budget could be enacted. Id.; A.G. Op. No. 2003-012, at 2.

Of course, that is not the circumstance in which we presently find ourselves. We acknowledge the formidable task the Governor faces, in the exercise of his constitutional obligation to take care that the laws are faithfully executed, to maintain the effective operations of state government in the absence of a legislatively enacted budget. The precise constitutional limits of the Governor's authority are difficult both to delineate and apply. Staub, our principal source of judicial guidance, was decided 125 years ago, and it is uncertain how the Supreme Court might interpret it or address these issues today. Finally, we must be mindful that these are issues that could become the subject of litigation, and we have a paramount responsibility to defend the State if claims are asserted in court against the Governor's actions. We therefore address your questions in light of these principles and cautionary observations.

Special Education Excess Cost Grants

Your first question asks whether the Governor has authority to reduce Excess Cost grants to municipalities for special education. Section 10-76g(b) of the General Statutes provides that the State shall pay the costs associated with special education above a prescribed threshold. Applications for the Excess Cost Grants are to be filed with the Department of Education by December 1, and payments of the grants are made in the following February and May.

Section 10-76g(d) provides for proportional reduction of grants for specified fiscal years if the total of such grants exceeds the amount appropriated. The legislature has repeatedly amended this provision to extend the proportional reduction provision of § 10-76g(d) to then-current fiscal years. Pub. Act No. 15-5, § 250 (June Spec. Sess.); Pub. Act No. 13-247, § 162; Pub. Act. No. 11-48, § 180. However, by its present terms, § 10-76g(d) does not apply to fiscal year 2018, and there obviously have been no appropriations against which to calculate the proportional reduction.

For the reasons we discussed above, how a court would resolve this issue cannot be predicted with certainty. The Revised Plan purports to reduce fiscal year 2018 Excess Cost Grants to their fiscal year 2017 levels, presumably to correspond roughly to the legislature's past practice of reducing grants proportionately by the amount appropriated for such grants. Although this may be a reasonable practical approach, there does not appear to be a statutory basis authorizing the Governor to make this reduction. Section 10-76g(b) sets forth how the Excess Cost Grant is to be calculated, and under Staub, the Governor has the authority and obligation to direct the payment of the grants. In the absence of existing statutory authority to reduce the amount of the grants to their fiscal year 2017 levels, a court could conclude that the full amount as calculated under § 10-76g(b) must be paid.

It is important to note that the Excess Cost Grants are not payable under the statute until February and May of next year. The Revised Plan is "a flexible document, subject to adjustment as the year progresses." Indeed, it is possible that changes in circumstances between now and when the payments come due may render this question moot.

Municipal Revenue Sharing Account

Section 4-66l of the General Statutes establishes the "municipal revenue sharing account" (MRSA) as a separate, nonlapsing account within the General Fund. Conn. Gen. Stat. § 4-66l(b). The funding for the MRSA comes from a portion of the sales tax. Conn. Gen. Stat. § 12-408(1)(K)(ii). Section 4-66l further provides that the Secretary of OPM shall disburse funds from the MRSA for fiscal year 2018 in priority order: (1) Motor Vehicle Property Tax Grants, (2) Select PILOT Grants under § 12-18c, (3) MRS Grants. Conn. Gen. Stat. § 4-66l(b).

Under § 4-66l(b), the first priority for payment is the Motor Vehicle Property Tax Grant, which we discuss below. The second priority is the Select PILOT Grant. These grants are paid out of a specific account established by Conn. Gen. Stat. § 12-18c. The third priority is the MRS Grant. For fiscal years 2018 and 2019, Conn. Gen. Stat. § 4-66l(d) provides an MRS Grant to each individual municipality in a set amount, payable from the MRSA not later than October 31 of each year. As noted above, funding for MRS Grants comes from sales tax revenues to be deposited in the MRSA, and revenues in the MRSA, which began the fiscal year with no funds, will continue to accumulate over the fiscal year. Thus, both the Select PILOT Grant and the MRS Grant are by statute payable out of specific accounts. If there are not available funds in those accounts, and appropriations do not otherwise exist for the payment of these grants, a court could conclude that the Governor appropriately determined not to expend monies that are not available. When and if sufficient funds become available in the MRSA, a court could conclude that the Governor would have the obligation to pay such funds in the priority set forth in the statute.

Your third question addresses Motor Vehicle Property Tax Grants. You indicate that under Conn. Gen. Stat. § 12-71e the cap on the motor vehicle mill rate was reduced from 37 mills to 32 mills effective July 1, 2017, but that the Governor's Revised Plan would provide grants to municipalities calculated at the 37 mill rate.

Section 4-66l(c) provides:

For the fiscal year ending June 30, 2018, and each fiscal year thereafter, motor vehicle property tax grants to municipalities that impose mill rates on real property and personal property other than motor vehicles greater than 32 mills or that, when combined with the mill rate of any district located within the municipality, impose mill rates greater than 32 mills, shall be made in an amount equal to the difference between the amount of property taxes levied by the municipality and any district located within the municipality on motor vehicles for the assessment year commencing October 1, 2013, and the amount such levy would have been if the mill rate on motor vehicles for said assessment year was 32 mills. . . .

Conn. Gen. Stat. § 4-66l(c) (emphasis added).

The Revised Plan proposes to reimburse only municipalities with a mill rate greater than 37 mills, rather than the 32 mill rate set forth in § 4-66l(c) for the October 2017 payments to municipalities. It is our understanding that there will be insufficient funds to make full payments at the 32 mill rate, but that payments could be made at the 37 mill rate. As you note, the cap on the mill rate was formerly 37 mills, but effective July 1, 2017, the cap was set at 32 mills. Conn. Gen. Stat. § 12-71e. Because of the limited funds available in the MRSA, the Revised Plan opted to use the former mill rate cap of 37 mills as the benchmark for making the Motor Vehicle Property Tax Grants. It is our understanding that the grants at the 37 mill rate are intended to be paid in October.

Again, how a court would resolve this issue cannot be forecast with reasonable certainty. The Governor's approach may be a reasonable and prudent policy decision, and one that the legislature might make under the circumstances. However, it does not appear to be an option that the statute on its face authorizes the Governor to make on his own. By selecting the 37 mill rate, rather than making a pro rata reduction in light of the lack of sufficient funds to reimburse at the statutory 32 mill rate, for example, some municipalities may receive grants, while others that have mill rates that exceed 32 mills might receive none. A court could conclude that this is not an outcome that the statute permits.

In conclusion, we must reiterate the cautionary observations we offered at the outset. The Governor is confronted with making very difficult decisions in the face of the legislature's continued inability to enact a budget, and it is apparent that he has attempted to meet that challenge by making reasonable and prudent choices. Our analysis of and conclusions about these issues are necessarily qualified by the uncertainty inherent in the law. We cannot predict with any reasonable certainty how a court, applying the imprecise guidance of a case from the late nineteenth century, would ultimately resolve these difficult questions, and the Governor's actions may be defensible in a court challenge.

We trust this is responsive to your questions

GEORGE JEPSEN
ATTORNEY GENERAL