Gov. Ned Lamont and his budget adviser, Melissa McCaw. mark pazniokas /
Gov. Ned Lamont and his budget adviser, Melissa McCaw. mark pazniokas /

Though the governor doesn’t set Connecticut’s budget alone, the chief executive’s proposal traditionally is a strong indicator of the funding that state agencies, municipalities and interest groups can expect to receive.

But with nearly $1 billion unspent in the current state budget, billions more in potential federal aid looming large and a new fight brewing over Connecticut’s spending cap, viewers of this drama aren’t sure what the biennial plan Gov. Ned Lamont will propose Wednesday will actually mean.

And while the governor has made it clear he wants to keep spending tight, some of his fellow Democrats are determined to loosen the purse strings as Connecticut tries to climb out of the coronavirus pandemic.

“We would welcome additional funding,” said Elizabeth Gara, executive director of the Connecticut Conference of Small Towns, which represents more than 100 communities with populations less than 30,000.

But given the many variables swirling around the next budget, she added, “I think keeping municipal aid whole is about as much as we can expect.”

A gloom-and-doom budget forecast vanished

Why the overly cautious forecasts? Largely it’s because state financial outlooks in the last nine months have swung from dire to rosy.

Only back in May, Lamont told nursing homes, social services, municipalities, small businesses and others who pleaded for a share of Connecticut’s $2.2 billion budget reserve that he couldn’t afford it.

That reserve, he warned, would be empty by now. And the next two-year budget would have a whopping, built-in hole of $5 billion to $6 billion. 

Now, flash forward nine months.

The $2.2 billion rainy day fund has swelled beyond $3 billion — hitting its legal maximum at 15% of annual operating costs.

And thanks to a robust stock market and surging income tax receipts, the potential gap in the next biennial cycle has been whittled down to $2.5 billion.

The administration also has saved big during the coronavirus pandemic. With the federal government picking up a larger share of state Medicaid costs, and with some programs and services unable to operate at full strength, Lamont expects nearly $940 million in the current budget to go unspent.

That’s more than three times the savings target he was mandated to achieve — although that target was set before the COVID-19 outbreak.

Should new federal aid be saved, or spent recovering from the pandemic?

And none of that good fiscal fortune takes into account the $350 billion in federal pandemic relief for states that President Joe Biden proposed. If Connecticut receives even the roughly 1% it traditionally gets of such federal packages, that’s about $3.5 billion that could be on the way — provided the new president can get Congress to cooperate.

“I think we have to deliver,” U.S. Sen. Chris Murphy, D-Conn., told the CT Mirror on Monday. “I think the chances are better than 50-50” of approving “significant federal funding for states” in March or April.

“My guess,” Murphy added, “is Connecticut is likely going to be the recipient of a billion, or billions, in flexible money.”

If Washington comes through this spring, the governor and General Assembly have a host of other options — at least on paper.

Until that aid arrives, Lamont is expected to propose cracking open Connecticut’s rainy day fund and using much of that to plug the $2.5 billion shortfall in the next two-year budget.

“Closing the entire deficit without some use of the rainy day fund would be detrimental at this point,” said Office of Policy and Management Secretary Melissa McCaw, Lamont’s budget director.

Technically, any dollars from Washington would be spent no matter what. But if federal aid comes through, does Connecticut still spend some of its reserves as well, or keep them in the bank?

Some lawmakers argue that any federal aid should not be used simply to refill Connecticut’s rainy day fund to its legal brim. A coalition of liberal Democrats countered last week that the pandemic represents a once-in-a-century crisis and Connecticut has time-sensitive needs that cannot wait.

“If this pandemic, which has cracked wide open every fissure in our systems, is not the rainy day that we have been waiting for, what is?” Rep. Christine Palm, D-Chester, said last week, calling for increased investments in health care, education and municipal aid. “What is the calamity that will take all of us to find the political will to do what is right for one another in a time that is so beyond imagining?”

And the clock certainly is ticking on Connecticut’s restaurants, said Scott Dolch, executive director of the Connecticut Restaurant Association.

That industry warned in November that about 600 establishments were shut down because of the pandemic. Some will never reopen, and the permanent closure list likely grows each week, Dolch said.

“They have been carrying 11 months of debt,” he said, adding that while it has received some federal and state aid, further significant assistance is key. “This is a dark time.”

“Right now I make no promises to my members,” Dolch said. “I’ve learned early on in this pandemic. … But I’m going to keep pressing every day.”

Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance, said, “We would certainly welcome additional funding. But I think we recognize this is going to be an austere budget.”

The alliance, which represents hundreds of small nonprofit agencies that deliver the majority of state-sponsored social services to the disabled, the poor and other needy individuals, has been pleading with Lamont since he took office two years ago for major relief for an industry whose funding has grown little over the past two decades.

Lamont is committed to staying under CT’s spending cap

But set against these and other needs is the state’s statutory spending cap, and Lamont isn’t letting legislators forget that.

The cap applies to roughly 70% of the budget, excepting debt payments, federal grants and a portion of the state’s pension contributions. The system tries to keep growth in the capped area on track with inflation, or with statewide increases in personal income.

Analysts project the capped section of the budget only can grow by a modest 2.9% next fiscal year. The growth is even leaner, at 2.4%, in 2022-23.

But the legislature can legally exceed the cap with a 60% vote in the House and Senate. 

McCaw said those options aren’t necessary.

“We believe there’s more than enough room under the cap to meet the current needs of the state,” she said.

State officials also routinely circumvent the cap either by borrowing for expenses normally covered by appropriations or by imploring various accounting gimmicks to move programs outside of the budget altogether.

Lamont, who called for the state to go on a “debt diet” when he took office two years ago, has hinted recently he might relax his grip on the state’s credit card to help Connecticut’s recovery from the pandemic.

“That’s not to say there aren’t times, such as under a public health crisis, when additional investments aren’t needed,” McCaw said.

But some legislators, from both parties, are wary of how Lamont will stay under the cap.

State budget rules would allow the governor to “carry forward” into the next biennial budget a big chunk of the $937 million he didn’t spend in this year’s package.

Since that money was appropriated this fiscal year, it technically wouldn’t factor into cap calculations going forward.

The Democratic leaders of Connecticut’s Appropriations Committee, Rep. Toni E. Walker of New Haven, and Sen. Cathy Osten of Sprague, both have pressed the administration to explain why so much money went unspent during a crisis.

And House Minority Leader Vincent J. Candelora, R-North Branford, said Republicans also are concerned about shifting huge resources from one year to another.

For example, Candelora said, local school districts badly need funds now. “There’s no question we have a larger achievement gap based on which children were sheltered at home and which children had in-person learning.”

Will impending surge in CT employee retirements lead to big savings?

Another X-factor Lamont may use to help balance his budget may not be too reliable, according to one of Connecticut’s top labor leaders.

State employee unions already have warned that they expect to file grievances and take other legal actions to block administration plans to downsize the state’s workforce. Thousands of additional workers are expected to retire before more stringent pension rules kick in in mid-2022, and Lamont says this is an opportunity to both save money and make services more efficient.

And while McCaw said the new budget isn’t too aggressive about assuming big savings in the next two years, Connecticut AFL-CIO President Salvatore Luciano said there may be even less than the administration expects.

Eliminating state jobs and privatizing more services would require contract negotiations, he said. And the state’s Clean Contracting law also would require a review to ensure services actually have improved and remain cost-efficient.

That statute was enacted 14 years ago to counter the contracting scandals that drove former-Gov. John G. Rowland from office amid an impeachment inquiry in July 2004. Rowland served 10 months in federal prison after admitting he accepted about $100,000 in gifts from state contractors and his staff.

Lamont tried to scale back several elements of that contracting system in 2019, but a legislative panel blocked those moves. As long as it’s in place, Luciano said, any major reduction in the state workforce is uncertain.

“I don’t see it as a foregone conclusion,” Luciano added.

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Keith M. PhaneufState Budget Reporter

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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