Gov. Ned Lamont and his fellow Democrats in top legislative leadership appeared headed for a showdown Thursday over the spending cap and the next state budget.
One day after top House and Senate leaders indicated existing budget proposals were underfunding core education, health care, town aid and social services, Lamont dug in, insisting leaders learn to make tough choices.
“Every day I have to set priorities,” the governor said during a late morning press conference in his Capitol office. “We can’t do everything.”
But minutes afterward, House Speaker Matt Ritter, D-Hartford, predicted the General Assembly would pass a budget with a big middle class tax cut that preserves core services — a package likely to draw overwhelming bipartisan support.
Although Ritter never used the word “veto,” he hinted that Lamont could stand alone if he sinks the budget over fiscal technicalities.
“The reality is there is nobody in the legislature — nobody I can think of — that is probably willing to vote against the largest tax decrease since the 1990s,” Ritter said. “The reality is this will be a bipartisan budget.”
The legislature’s plan not only features a major tax cut but gives communities significant resources to control municipal property taxes, said Senate President Pro Tem Martin M. Looney, D-New Haven, who added that “legislators of both parties are quite sensitive to the issue of municipal aid.”
At issue is how the cap, which is designed to keep most spending in line with inflation and the growth in statewide personal income, is shaping Connecticut’s budget for the next two fiscal years.
More specifically, Democratic leaders say the cap isn’t permitting sufficient growth to address vital problems created or exacerbated by the coronavirus pandemic and inflation.
But Lamont, a fiscal moderate, says lawmakers already have employed too many gimmicks in their proposals to date and are undermining the budget controls that have put state finances — in the short term — in excellent health in recent years.
The $51 billion, two-year budget endorsed this week by the Appropriations Committee would boost spending by more than 3% in each of the next two fiscal years. But it also carries more than $260 million of this year’s budget surplus into the next biennium to bolster funding for public colleges and universities, social services and other programs.
The Finance, Revenue and Bonding Committee adopted a two-year revenue plan Wednesday that would cut state income taxes by about $200 million next year and by $300 million by 2024-25 — with all relief focused on low- and middle-income households.
But the committee also sought to divert as much as $400 million in revenue outside of the cap system.
State government amassed a staggering $4.3 billion surplus last fiscal year, a record-setting amount equal to roughly 20% of the General Fund. This year it’s on pace for the second-largest surplus in state history, about $3.3 billion.
Because the state’s emergency budget reserve already is at its legal maximum, Connecticut has been pouring billions of surplus dollars into its pension funds to pay down debt, and Lamont says this needs to continue.
But much of the state’s recent windfall reflects surging sales tax receipts driven upward by inflation, Ritter said, adding it’s only fair that communities benefit from at least a portion of this.
Democratic leaders want to intercept $300 million out of any revenue surges in each of the next two years — before they arrive in the General Fund and become subject to spending cap limits — and send them to municipalities to preserve local services and keep property taxes down.
The finance committee endorsed that proposal Wednesday, along with a second that would similarly capture $100 million in receipts from the sales tax surcharge on restaurant food and other prepared meals — and also send that to communities.
“I think that is exactly contrary to everything the guard rails are all about, everything that helped get our state going forward in the right direction,” Lamont said. “If you don’t like the spending caps, vote them out, but don’t play games — none of these gimmicks.”
The Democratic governor received support Thursday from the Senate’s Republican leader, Kevin Kelly of Stratford.
“I applaud the governor for continuing to push for an honest, balanced and ‘gimmick-free’ budget,” Kelly said. “He is absolutely correct to highlight the fact that our responsible fiscal guardrails, which were unanimously renewed just two months ago, have served our state well and must be respected.”
Lamont’s budget history isn’t immune from gimmicks
But despite his protests, Lamont has indulged in a few gimmicks himself.
Using bonding to cover budget expenditures is another way to maneuver around the cap, and Lamont added that to the list of gimmicks he criticized Thursday.
“Look, you do not borrow money to pay for operating expenses,” he said.
But the governor’s own $50.5 billion budget proposal for the next two fiscal years would use $80 million in borrowed funds to make payments on borrowing.
Legislators voted in 2017 to end that longstanding practice by 2019. Lamont convinced them four years ago to suspend this change until 2023 and now wants to push it off again for another budget cycle.
The governor also proposed and won legislative approval in 2019 to refinance the pension fund for municipal teachers, reducing payments projected to spike in the late 2020s and asking a future generation of taxpayers to cover the difference — plus the lost investment earnings.
But while many argued that change was necessary, Lamont also used the refinancing plan to lower required pension contributions in 2020 and 2021. Required contributions for these years were not spiking and already were hundreds of millions of dollars less than those scheduled for later in the decade.
But by reducing them, Lamont was able to close a significant state budget deficit without increasing the income tax — an accomplishment he touted frequently as he campaigned for reelection last summer and fall.
The governor did say Thursday that he would like to see more funding dedicated to the private nonprofit agencies that deliver the bulk of state-sponsored social services. But he said that still has to be part of a gimmick-free budget that doesn’t try to circumvent the spending cap.
Democratic legislative leaders say without working around the cap, extra funds for social services will mean reducing funds for some other core service, such as early childhood development, higher education or municipal aid.
The Ct Community Nonprofit Alliance, which represents roughly 300 nonprofit agencies, rallied Thursday at the Legislative Office Building for more assistance.
The alliance estimates state payments to the industry are $480 million below 2007 levels, once adjusted for inflation. The Appropriations Committee budget would boost aid to nonprofits by 1%, or about $20 million, next fiscal year.
“One-percent increases are, indeed, a decrease in funding for us,” said Tracey Walker of Journey Found, a Manchester-based service provider for adults with intellectual disabilities. “It’s a funding cut.”
Rep. Jillian Gilchrest, a West Hartford Democrat who is co-chair of the Human Services Committee, called the amount of money budgeted for nonprofits “shocking,” particularly in a year when the governor is proposing cutting taxes.
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“It is unconscionable to me that we would ever have a tax cut in this state while we’re not paying the people we owe money to,” Gilchrest said. “We contract with nonprofits, and so we must pay people for the services they’re providing.”
Joseph Mercer, a 61-year-old Norwich resident who participates in day services, said when nonprofit providers go away or reduce capacity, it leaves people feeling lost and upset.
“The reality is now that we need to have continued, active services,” he said. “People are going to keep coming.”
“What the Appropriations Committee budget provides for nonprofits doesn’t work,” said CT Community Nonprofit Alliance President Gian-Carl Casa. “Right now, what we’re doing is asking legislators and the governor to take this opportunity to make God’s work their own, that their role is to give nonprofits the tools to help those who need it.”
“That fight starts today,” Casa said.