Democratic leadership with Gov. Ned Lamont at announcement of a budget deal in 2019. mark pazniokas / ctmirror.org

State officials on Tuesday morning said they were close to a deal for a new budget.

Both legislative leaders and Gov. Ned Lamont’s administration have offered compromises, sources said, to settle their largest outstanding issue: bolstering an early child care and development industry, both now and over the long haul.

The administration has agreed to expand its funding proposals in this area for the fiscal year that begins July 1, though not to the level sought by the legislature’s Appropriations Committee.

And majority Democrats in the House and Senate have offered another way to increase investments in infant and toddler development over the long term without tampering with the savings programs that have allowed the state to amass more than $7 billion in reserves and projected surpluses in four years.

“We’re in great shape,” House Speaker Matt Ritter, D-Hartford, said Tuesday, adding he said efforts to resolve differences in spending are “99% of the way there.”

Ritter also said House Democrats expect to have a budget deal ready Wednesday to discuss in a closed-door caucus, and that could lead to a House debate and vote on the plan on Saturday.

The administration and legislative leaders have been sparring in recent days over how to better fund child care, early childhood intervention programs and other efforts to help an industry that was hit hard by the coronavirus pandemic.

Lamont’s objections to legislative proposals largely have centered not on how the money would be used — half to provide a new income tax cut for families with children, half to invest in early childhood development, particularly in urban centers — but rather with from where the funding would come.

“I just want to make sure we don’t get tempted to go back to the old days where we got in trouble,” Lamont cautioned two weeks ago, shortly after the Finance Committee had recommended dedicating more than $300 million annually, starting in 2024, to help families with children.

The Finance Committee specifically had proposed repurposing a savings program that’s become known as the “revenue cap.”

Designed to stop legislators from creating budgets with no room for error, this cap was created in 2017 and says appropriations cannot exceed 99% of projected revenues this fiscal year. That’s a built-in cushion of $275 million. By 2024 the revenue cap would reach 98.5%, and would create a cushion of $321 million.

Sources said legislators have offered to drop this proposal if Lamont would use another source of funds to ramp up spending on early childhood development for several years to come.

Connecticut has used surpluses over the past two years to pay down almost $1.7 billion in pension debt, in addition to the billions spent annually on regular pension contributions. And the state is expected to make another huge supplemental debt payment at the end of this summer.

Legislators and administration officials have said this should reduce annually required pension payments by $200 million to $300 million per year by 2024 or 2025.

Sources said lawmakers suggested that some of those funds could be used to expand spending on child care and infant and toddler development.

The governor also tried to reach middle ground, sources said, by offering to expand funding for the child care industry next fiscal year, which legislators have said wasn’t sufficient to address critical problems.

Lamont’s proposal doesn’t include the $72 million the Appropriations Committee sought to boost wages for that industry, which was hit hard by the pandemic.

But sources said it does include funding to stabilize child care businesses beyond the roughly $25 million Lamont proposed in his own budget last February. 

Lawmakers and the governor also agreed to use federal pandemic relief funds provided through the American Rescue Plan Act to help child care providers.

Legislators have said Connecticut can easily afford to do more to help child care and still maintain fiscal stability.

The state has $3.1 billion in its rainy day fund — the maximum allowed by law — and the current budget is on pace to close a staggering $4 billion in the black, equal to one-fifth of the entire General Fund.

In addition to the revenue cap, the state also has a second, even-larger savings program still in place.

The “volatility adjustment,” also created in 2017, forces legislators to save a portion of state income tax receipts tied to capital gains and other investment earnings, revenues that historically have fluctuated greatly from year to year. And since the stock market generally has been robust since 2017, the volatility adjustment never has failed to save less than $500 million per year since its creation.

It’s not the state’s coffers that are in most dire need right now, says Sen. John Fonfara, D-Hartford. Rather its Connecticut’s children, particularly in poor cities, where the achievement gap is great.

“Too many children are denied those opportunities that most of Connecticut enjoy, great opportunities,” he said earlier this month when the Finance Committee recommended repurposing the revenue cap.

Legislators and Lamont appeared last week to reach middle ground on the revenue side of the new budget, with several tax cuts likely in the offing.

“I think this year you’ll see the most significant tax cuts this state has seen in many a year,” the governor told morning radio talk show host Brian Schactman during an appearance on WTIC 1080 AM.

Among the tax cuts expected to be approved are:

• An expansion of the property tax credit within the state income tax from $200 to $300. The credit also would be made available again, for the first time since 2017, to families without children or seniors.

• A reduction in the cap on municipal property taxes on non-commercial vehicles from 45 to 29 mills.

• An expansion of the state’s income tax credit for working poor families from 30% of the federal Earned Income Tax Credit to 41.5%. This would provide roughly an extra $300 annually to more than 185,000 households.

• A new $300 per child tax credit within the state income tax for low- and middle-income families.

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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.