Gov. Ned Lamont used his routine, monthly budget forecast Friday to send an unconventional message to the General Assembly: Please put requests to restore spending or repeal tax hikes on hold.
At first glance, the $84.3 million surplus projection issued by the Office of Policy and Management is hardly a sharp warning, even given that the budget’s General Fund was designed to run $141 million in the black.
It is not quite three months into the new fiscal year. Tax receipts and other revenues are on schedule. Revenue shortfalls usually are the culprit behind any major deficit.
The administration is projecting nearly $57 million in cost overruns, including $30 million in Medicaid, $20 million in legal settlements and other adjudicated claims and $6 million in the Department of Correction.
On the other hand, the fiscal year doesn’t end for another nine months and 10 days. The last few administrations rarely disclosed spending problems during the first quarter of the fiscal year, noting there was plenty of time to cut costs elsewhere before June 30.
“This month’s revision reflects the reality of managing a state budget across the course of an entire fiscal year,” said Melissa McCaw, Lamont’s budget director. “We must and will remain vigilant to keep ourselves in balance and to keep this state on the right track financially.”
So why is Lamont ringing the fiscal caution bell, albeit not a full-blown fire alarm, this soon in the fiscal year?
The reason is talk. Since the regular 2019 General Assembly session adjourned on June 5, lawmakers from both parties have talked about revising the new, two-year plan they adopted.
Some Democrats and Republicans have objected to a new Medicaid-rate-setting policy that reduces payments for nursing homes with largest numbers of vacant beds. This will cost a total of nine facilities an estimated $5.3 million across this fiscal year and next.
Lawmakers also balked at a new 1% sales tax surcharge on meals and other prepared foods. And even though the Department of Revenue Services revised instructions Thursday to grocery stores, directing them to scale back instances in which the tax would be applied, House and Senate Republican leaders still are demanding lawmakers meet in special session this fall and repeal the surcharge.
The budget also includes hundreds of millions of dollars in efficiencies and other savings the administration must achieve now that the fiscal year is underway.
These savings mandates imposed on governors by legislatures are nothing new, but also traditionally trigger grumbling from lawmakers as the chief executive actually holds back funds from various agencies to fulfill the task.
And legislators have known since late May that Lamont reached a tentative deal to resolve a lawsuit Connecticut’s hospital industry filed against the state in 2015 regarding its hospital provider tax. Though the bulk of costs tied to that settlement are expected to be drawn from last fiscal year’s surplus, administration officials have warned this settlement also could shift numbers in the current budget.
Lamont wants legislators to return to the Capitol this fall to ratify that settlement and to consider a new 10-year plan to finance transportation infrastructure work.
But despite the administration’s new fiscal forecast, lawmakers still may want to adjust the budget.
“I understand the governor’s position, but historically there nave been tweaks to the budget” after its adoption, said Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee.
Osten and the panel’s other co-chair, Rep. Toni Walker, D-New Haven, wrote to Lamont last month asking him to reconsider Medicaid rates for nursing homes. And Osten said Friday that legislators remain concerned this policy could interfere with services for some of Connecticut’s most vulnerable citizens.
“That is our job, to see how these policies are playing out,” she said. “I appreciate that the Executive Branch would like to stay within parameters.”
But Osten added that her fellow Democrats in the House and Senate majorities “understand we still have to have a sense of frugality. Nobody is looking to overhaul the whole budget.”
If rate cuts were reversed, for example, for nine nursing homes, this would increase spending by $5.3 million over two years or about $2.65 million per year. That represents 1/73rd of 1% of the General Fund.
Osten also noted state government’s overall fiscal position has steadily improved over the past two years. Connecticut is expected to have a record-setting $2.45 billion in its emergency reserve, otherwise known as the rainy day fund, at the end of this month when Comptroller Kevin P. Lembo completes his audit of the recently completed 2018-19 fiscal year.
Republicans in the House and Senate not only want to reverse the nursing homes cuts, but also favor a second move that would de-stabilize the budget somewhat more. The GOP favors repealing a sales tax surcharge that is expected to raise $48 million this fiscal year and $66 million in 2020-21.
And Republicans have not offered any complementary proposal to increase other revenues or reduce spending by a balancing amount.