The legislature’s Appropriations Committee kept its cards close to the vest Thursday, offering few clues of how it would change state finances next fiscal year.
As anticipated, committee leaders said the panel would not recommend formally reopening the preliminary $26 billion budget for 2024-25, even though that plan already has significant holes in it.
But top leaders of the Democratic-controlled legislature say the majority still plans to move some resources around in the next budget without formally adjusting the plan or changing the bottom line. Still, the Appropriations Committee on Thursday offered only general descriptions about what those changes might entail, sharing no numbers publicly.
Their priorities chiefly involve public colleges and universities, nonprofit social service agencies, and mental health services, said Sen. Cathy Osten, D-Sprague, and Rep. Toni E. Walker, D-New Haven, co-chairwomen of the budget committee.
Leaders of the Democratic majorities in the House and Senate will begin final negotiations with Gov. Ned Lamont’s budget office, hoping to resolve all spending for the next fiscal year before the regular legislative session ends on May 8.
“We’re going to hope as we move forward that in discussions that our … legislative leaders have, and Gov. Lamont, will take these priorities into consideration as they begin the budget deliberations,” Osten said. “And we stand ready to work with them on any of the policies as they do so.”
Taking an unusual approach to the CT budget
Connecticut has budgeted in two-year cycles since the mid-1990s, adopting a biennial plan in odd-numbered years and then, usually, adjusting the second half of that plan in the spring of even-numbered years.
Those adjustments, though typical, aren’t required. Legislators opted not to do so in 2020 when they ended their session in early March with the outbreak of the coronavirus pandemic. And when an approaching global recession had analysts in May 2008 projecting red ink for the budget for the 2008-09 fiscal year, legislators opted to do nothing rather than make spending cuts or tax increases.
But this year’s dynamic is different.
Legislators want to add $300 million to $400 million to the next state budget to bolster high education, social services and mental health, as Osten and Walker said. And on paper, the money is there to fund all of these programs.
The preliminary, $26 billion budget for 2024-25 has a built-in operating surplus of nearly $300 million. And a program that forces legislators to save a portion of volatile income and business tax receipts is projected to capture roughly $450 million more. Collectively, that’s a budget safety net of $750 million.
But according to one of a series of budgetary controls — commonly called “fiscal guardrails” — legislators are supposed to keep that $300 million cushion in place to guard against a deficit. They also aren’t supposed to touch those volatile income and business tax receipts, which represent a second line of defense against red ink.
A third guardrail, a spending cap that keeps expenditures in line with household income and inflation, says no more spending is allowable next year anyway.
And there are still more problems. In recent months, some problems appeared in the preliminary budget for next year, problems legislators normally would address either with spending cuts, tax hikes or some combination.
Lamont reported in February that the preliminary budget underfunded required contributions to pensions by $156 million.
His budget office also says spending this year is running almost $230 million greater than approved levels, with most of that problem tied to Medicaid programs. And cost-overruns of this level usually aren’t limited to one year, meaning some of this $230 million overage likely will happen in the next budget as well.
Further, sales tax receipts have fallen well below anticipated levels as inflation has dropped. This year’s collections already are $225 million below the level anticipated in the next state budget. In other words, there likely is a revenue shortfall in that plan as well.
Are legislators asking Lamont to ignore a budget with built-in holes?
So how do legislators add spending for higher education, social services and health care — without violating the cap — when the only dollars they have available are supposed to be saved, and when there are more costly problems demanding immediate attention?
The first step is to not reopen the budget. This allows legislators to defer dealing with the projected holes in 2024-25 finances.
The second step is to move funds around within the preliminary budget for next year without changing the bottom line. Democratic legislative leaders say they believe there is about $190 million that could be taken from debt service and other programs — without harming them — and shifted to higher education, social services and health care. As long as the bottom line remains unchanged, Democratic leaders say, the original budget hasn’t formally been reopened, and the other problems can be left unaddressed for now.
Democrats hope the remaining $110 million or more they want for core services will come from unexpended federal pandemic aid the state first received in 2021.
Congress granted Connecticut about $2.8 billion through the American Rescue Plan Act, and those emergency dollars are exempt from the state’s spending cap system. The Lamont administration is tallying available ARPA funds and is expected to give legislators an updated tally later this month.
The last step would occur at the end of the next fiscal year. If $400 million to $600 million in problems develop because of unfunded pension contributions, cost overruns in Medicaid and other areas, and declining sales taxes, the built-in $300 million surplus and $450 million saved from volatile revenues would cover it all.
That approach might seem convoluted, but Walker said Democrats on her committee heard a constant refrain at public hearings this year that more funds were needed for education and human services.
“Those were the things that we heard almost every single night, one way or another. And we have to listen to the people,” she said.
“We believe it’s important that we have a community and a commitment to keeping our state moving forward, not backward,” Walker added. “We can’t afford to go backward, because that would end up a disaster for the state of Connecticut.”
The Democratic plan also ultimately calls for state finances to close next fiscal year with funds left unspent and available to be deposited in the budget reserve or used to pay down pension debt.
Lamont remains noncommittal about Democrats’ plan
The political problem, though, is that more dollars are supposed to be saved than the Democratic plan allows for. Lamont, a fiscal moderate, has repeatedly lauded the guardrails and insisted his fellow Democrats respect these savings requirements without gimmicks.
But while he could block this plan by not signing any bill to transfer more funds into core programs in the next budget, his administration has been relatively quiet since Democratic leaders unveiled this fiscal strategy earlier this week.
The administration has said only that the governor will insist on an honest budget that complies with the guardrails. When asked by The Connecticut Mirror again Thursday how the administration would handle the plan, Lamont spokeswoman Julia Bergman repeated the same message.
“We will be working with legislative leaders in the coming weeks to review their plan and ensure we remain within an honestly balanced budget,” she said.
Chris Collibee, Lamont’s budget spokesman, added that “We have heard the Appropriations Committee on their priorities and will work with the General Assembly in the coming days and weeks to craft a final product that will allow us to administer the final FY25 budget without risking the deficits that Connecticut weathered in the past.”
GOP is wary of fiscal gimmickry
But Republican legislators, who also have been vocal proponents of the guardrails, noted that the state Constitution mandates a legislators and the governor approve a balanced budget.
And the GOP cautioned Democrats about leaving big holes in the next budget.
“The caution flag that I would raise is that I will remain not leery, but skeptical of opportunities … or attempts to work around our very important guardrails that have put Connecticut in the better position — the best position — it’s been in financially in the 10 years that I’ve sat in this building,” Sen. Eric Berthel of Watertown, ranking Senate Republican on the Appropriations Committee, said during Thursday’s meeting.
House Minority Leader Vincent J. Candelora, R-North Branford, said during a break in the meeting that “Whatever budget comes forth needs to be objectively vetted … to determine whether or not the decisions that are being made are accurately reflecting a balanced budget.”