What Exactly Are Fiscal Notes?

What Exactly Are Fiscal Notes?

Little is known about how fiscal notes are devised despite importance

With the election over, and the House and Senate ready to open the legislative session in just over two months, CCM is ready to start looking at what challenges lay ahead for the state of Connecticut, and how those will affect the municipalities. Unfunded mandates are of particular concern; we released a Candidate Bulletin as part of our 2018 Election Campaign before the midterms. In it we recommend many solutions to these burdensome laws — including repeal of the worst offenders and excluding emergency contingency funds from inclusion when determining municipalities’ ability to pay — but these measures are fighting symptoms rather than the cause. Why do these mandates get passed in the first place if they are so burdensome? It could very well lay in the hands of the fiscal note process.

If you aren’t familiar with a fiscal note, that’s because that information often gets lost in the conversation about a bill or amendment, but it’s required on every one that reaches the floor of the House or Senate, or is approved by committee. The Office of Fiscal Analysis (OFA) gives this brief definition: “a fiscal note is a brief statement of the fiscal impact that a piece of legislation would have on state and local government. The economic or social impact of the legislation is not included.” This definition falls short of explaining what a brief statement is or how the OFA comes to these conclusions of impact on state and local government.

Looking to the Connecticut General Statutes does not enlighten the situation much further. Under Sec. 2-24a, the law, quoted in full, states that “no bill without a fiscal note appended thereto which, if passed, would require the expenditure of state or municipal funds or affect state or municipal revenue in the current fiscal year or any of the next ensuing five fiscal years shall be acted upon by either house of the General Assembly unless said requirement of a fiscal note is dispensed with by a vote of at least two-thirds of such house. Such fiscal note shall clearly identify the cost and revenue impact to the state and municipalities in the current fiscal year and in each of the next ensuing five fiscal years.”

Elsewhere in the law, Sec. 2-71c to be exact, the statutes mandate that the OFA create the fiscal note, and that municipalities have “two working days to provide the OFA with any information that may be necessary for analysis in preparation of such fiscal notes.”

The problem is there is no one methodology for assessing the fiscal impact of a bill, nor is there any statute or law giving a standard procedure. When reaching out to the OFA, Director Neil Ayers said in an e-mail that “given the diverse assortment of proposals that come before OFA, there is no one process that dictates the calculation of a fiscal note. Our analysts rely on a wide variety of resources in analyzing a proposal.”

Even former Director Alan Calandro noted that this ambiguity could be problematic when giving a presentation on Fiscal Notes to the National Conference of State Legislatures in 2014. During the issues portion of his presentation, he noted an increased political environment and external information from various angles. He also noted increased scrutiny and a balance between accounting jargon and verbosity.

The way a fiscal note is read and prepared are important. If a fiscal note is too complex, then it is not elucidating the fiscal impact as it should, but if it only gives you a number then that information is ripe to be misunderstood. Calandro noted that the new expectation of the fiscal note process is the answer to what does the fiscal impact mean to municipalities and the state, rather than a number on the page without context.

The Advisory Commission on Intergovernmental Relations (ACIR) invited Neil Ayers to discuss fiscal notes at their September meeting, partly due to members noticing that the fiscal impact of bills differing from what was stated in the OFA’s Fiscal Note. This often stems from unquantifiable costs. CCM used, for example, PA 11-232, anti-bullying legislation, did not account for the added cost of changes the board of education had to make to professional development, and the additional burdens to existing emloyees. In an era when many staff are already stretched thin, the OFA would have a hard time accounting for the fiscal impact of these kinds of burdens.

During the course of their meeting, Ayers, along with other members of OFA, elucidated the process to say that fiscal notes do not consider potential secondary or tertiary impacts, but OFA does review grand lists, property tax data, and census data, and wherever incomplete data exists, they contact municipalities to help fill in that information. Some of these secondary or tertiary impacts though are exactly what is becoming a burden to municipalities.

CCM Deputy Director Ron Thomas, who is on the commission, noted that CCM does provide information about the fiscal impact of a bill during testimony, but it often doesn’t reach the fiscal note.

Despite the difficulty in preparing comprehensive notes on a five day deadline, OFA prepares a fiscal note for every single bill per state statute, and they are up online for everyone to review, usually within 24 hours of them being submitted. But even if the fiscal note suggests that there would be a burden on a municipality in the form of an unfunded mandate that does not mean that it won’t pass before the House or Senate. This is especially problematic in last-minute amendments that alter the original bill, which might have the effect of rendering testimony pointless.

With the upcoming session, it will be important for municipal leaders and the newly elected state legislators to remember that unfunded mandates often pass the buck from the state down to the municipalities, and those mandates only further burden placed on the citizens of all 169 towns and cities in the state of Connecticut, either through loss of services or increased property tax.

Because of the elusive nature of fiscal notes and the process by which those numbers are created, there is every reason to request more transparency from OFA and for increased input on the parts of the municipalities that might be affected. OFA should be given more time to complete fiscal notes, and bills should not be pushed through until their impact is understood and agreed upon. If this transparency and collaboration is completed, fiscal notes will go from being misunderstood to a municipality’s greatest asset in the legislature.