Despite record-setting reserves and growing crises in higher education, social services and state agency staffing, the legislature’s Appropriations Committee is expected to recommend lean spending for the next two fiscal years.
One driving force behind the spending proposals tentatively scheduled for release Tuesday stems from the big push Gov. Ned Lamont and many lawmakers from both parties are making to provide households and businesses their second big round of tax cuts in two years.
But the larger factor is a relatively new spending cap system — recently renewed for another five years — that critics say is too rigid to respond to unexpected obstacles like the coronavirus pandemic and last summer’s 40-year-high in inflation.
“There’s been an unrealistic expectation from many groups that there is an ability to spend billions of [new] dollars,” said Sen. Cathy Osten, D-Sprague. “We don’t have that capacity.”
At first blush, that statement seems odd, given recent history.
Connecticut has racked up $9 billion in budget surpluses since it launched an aggressive new program in 2017 and 2018 that forced government to save a hefty portion of quarterly income and business tax receipts.
Simultaneously, lawmakers also imposed a new cap on appropriations that no longer exempts aid to poor cities and towns and has begun to move billions of dollars in annual pension contributions — also previously exempt — under the spending limit.
And to stymie efforts to weaken this system, legislators initially pledged in contracts with state bond investors not to tamper with this system until mid-2023 — a promise they and Lamont renewed in February for another five years.
Lamont gives lawmakers little room to fix higher ed
When the governor unveiled his own spending and revenue plans two months ago for the next budget cycle, he proposed $25 billion in spending for the fiscal year that starts July 1, a 3.5% increase.
Even more importantly, that plan fell just $57 million below the spending cap. That’s a razor thin amount equal to 1/4 of 1% of the General Fund.
Lamont’s fellow Democrats in the legislature’s majority said that challenge was compounded by several “holes” in the governor’s plan.
He proposed $67.5 million over the next two fiscal years combined for rate hikes, $15.5 million in the 2025 fiscal year for state-funded school readiness programs, and $35 million in emergency federal pandemic aid for a one-time boost through the CT Care 4 Kids program, a partnership between the state and various child care services.
Some lawmakers called it a good start but said it doesn’t do enough to offset long-term economic damage done to child-care services during the worst years of the coronavirus pandemic.
Rep. Toni E. Walker, D-New Haven, longtime House chairwoman of the Appropriations Committee, said that dynamic was repeated — only worse — with public colleges and universities.
Lamont recommended less money for the University of Connecticut and also for the merged regional university and community college system than they received last year.
Both systems were buoyed with significant emergency federal pandemic relief over the past three years, and the administration notes that its proposal would increase baseline state funding for these institutions.
But higher education officials counter that regardless of where the money comes from, Lamont is asking them to get by with significantly less — and the fiscal problems created by the pandemic haven’t vanished just because infection caseloads have dropped.
Lamont would channel $887 million into UConn, its satellite campuses and its Farmington-based health center over the coming biennium. That’s down from the nearly $1.1 billion in assistance they received across this fiscal year and last.
Similarly, the governor wants to give $923 million to the community colleges and regional universities over the coming biennial, down from $1.04 billion received across this fiscal year and last.
The regional universities’ revenue from student housing services still hasn’t fully recovered from the pandemic, and enrollment remains problematic also. Walker said there’s no way to follow Lamont’s proposal and not ask higher education to cut services to students.
Questions around education aid, social services, agency staffing
The spending cap doesn’t just tie legislators’ hands when it comes to higher education and early childhood development.
The governor’s budget would maintain a program first approved in 2017 to increase the Education Cost Sharing program for local school districts significantly by 2027. Lamont specifically wants to increase the $2.2 billion ECS program by $46 million annually starting July 1. Grant funding would rise to $91 million above current levels in the second year of the biennium.
But many Democratic legislators want to accelerate the ECS expansion even more.
Lamont offered no increase for the community-based nonprofits that deliver the bulk of state-sponsored social services. And while they have gained $330 million in new funding over the past two years, the industry estimates its annual payments from the state are more than $480 million below 2007 levels, once adjustments for inflation are made.
The Appropriations Committee also hoped to make headway this year reversing what leaders and employee unions say its a staffing crisis in many state agencies.
Although the legislature and Lamont’s predecessor, Gov. Dannel P. Malloy, shrank the Executive Branch workforce by about 10% to help solve several budget deficits between 2011 and 2018, staffing continues to erode under Lamont.
The administration reported last month that it expects agencies to save $100 million this fiscal year in salary accounts, with about $80 million of that in human services agencies.
The Appropriations Committee is expected to recommend a plan that will comply with the statutory spending cap, but Walker hinted that discussions about the cap likely will continue after that, when top legislative leaders and the governor’s staff negotiate a final deal on a new state budget.
There’s “a much bigger policy that needs to be addressed at a different level,” Walker said.
The spending cap, though fairly rigid, does have some flexibility. The legislature legally can exceed the cap provided 60% of the full House and Senate agree and provided the governor declares a state of fiscal emergency. To date, Lamont has consistently argued the cap needs to be followed.
There also are some accounting maneuvers that some critics call “gimmicks” that can work around the cap. For example, lawmakers could employ a “revenue intercept” to move a program outside of the cap.
This mechanism targets dollars before they arrive in the General Fund and assigns them for specific purposes. Because the cap only applies to budgetary appropriations, these dollars then could be used for a specific purpose, such as higher education or social services, without counting against the spending cap limit.
Lamont generally has opposed such maneuvers.
Finance committee should adopt tax cut plan this week
Walker also noted that her committee has to be careful of more than just the cap.
Though the current fiscal year is on pace for a $3.3 billion surplus — which would be the second-largest in state history — and early projections for 2023-24 are healthy, lawmakers have to be careful down the road.
That’s because the Finance, Revenue and Bonding Committee is finishing its work this week as well, proposing a tax and revenue plan for the next two fiscal years. And that plan is expected to include more than $500 million in annual tax relief.
The committee, which will meet on Tuesday and Wednesday, is expected to endorse the first major state income tax cut since the mid-1990s, as well as an expansion of the income tax credit for working poor families.
Lamont recommended both relief measures when he proposed his budget in February. They are expected to cost the state $450 million per year or more — depending on how final income eligibility rules are set.
But progressive legislators and policy groups made a strong last-minute push last week for a new income tax credit for poor and middle-income families with kids.
Comptroller Sean Scanlon has been pushing for a $600 per child credit, up to $1,800 per household. They also want to make at least 70% of the credit refundable, meaning that a poor family with no income tax liability still could receive up to $420 per child as a credit to bolster their tax refund.
Rep. Maria Horn, D-Salisbury, co-chair of the finance committee, said last week that a full $600 credit likely would not be endorsed this year. But Horn said the panel still is weighing a smaller child tax credit.
The state offered a one-time $250-per-child income tax rebate last summer, and Scanlon said something similar to that over the next two-year state budget cycle still would provide huge assistance to many low- and middle-income households trying to make ends meet.
“This is a great state, but at the same time, raising a child in Connecticut is more expensive than almost anywhere else in the United States,” Lisa Tepper Bates, president and CEO of the United Way of Connecticut, one of the groups that rallied Friday at the Legislative Office Building for a child tax credit.
The United Way’s ALICE methodology — labeled with an acronym for Asset Limited, Income Constrained, Employed households — says a family of four needed to earn $90,660 to cover basic “survival” needs in Connecticut before the pandemic weakened the economy in 2020.
The Federal Poverty Level — a 60-year-old metric focused chiefly on pre-tax earnings and a projected minimum food diet — holds that a family of four earning more than $30,000 annually doesn’t meet the legal standard of impoverished, a threshold many state legislators reject.
Besides earnings and food costs, the ALICE methodology also focuses closely on health and child care expenses, transportation, utilities and other housing costs.