Gov. Ned Lamont’s administration announced Wednesday it wouldn’t help legislators shift more funds into core programs in the next state budget if they also intend to ignore obvious holes in the plan, a move that would undermine fiscal controls Lamont touts frequently.
The administration also disclosed that roughly $200 million in federal pandemic relief could be available to bolster programs next year — far more than the $56 million it estimated in early February.
But that higher-than-anticipated relief funding still isn’t enough to avert a showdown between Lamont and his fellow Democrats in the legislature’s majority, given that lawmakers want to add $300 million to $400 million to higher education, social services and health care in the upcoming fiscal year.
Lamont spokesman on budget transfer plan: ‘The answer is no’
“The answer is no,” Lamont’s budget spokesman Chris Collibee said Wednesday when pressed by The Connecticut Mirror about whether Lamont would sign a budget transfer bill that helps core programs but doesn’t address fiscal holes.
“Gov. Lamont’s position is firm. The state budget must be balanced and remain consistent with all statutory and constitutional caps,” Collibee added.
Democratic leaders disclosed early last week that lawmakers wouldn’t formally adjust the preliminary $26 billion budget approved last June for the 2024-25 fiscal year. State spending cap rules not only would bar any increase to the bottom line but would require $30 million in cuts.
[RELATED: Leaders now say they can fix CT budget without adding big dollars]
Further complicating matters, the administration has identified several large holes that could turn the nearly $300 million operating surplus built into that preliminary budget into a deficit:
- Pension and other retirement programs need another $156 million to meet mandatory contribution levels.
- State agencies have reported more than $310 million in gross over-spending this fiscal year, with much of that problem involving Medicaid-funded programs. Analysts typically project at least a portion of these cost overruns to continue for more than one year.
- And 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.
Democrats don’t want to formally adjust that plan and haven’t proposed any fixes to the problems Lamont has identified. But they do want to transfer resources around within that plan without changing the bottom line, moving more into higher education, social services and health care.
Over past week, the administration has been noncommittal, insisting only that Lamont would demand an “honestly balanced” budget but declining to say whether he would accept this approach.
Carol Platt Liebau, president of the conservative Yankee Institute for Public Policy, said Tuesday that given Lamont’s staunch public support for the guardrails, not backing the Democrats’ selective approach toward revising 2024-25 spending is the clear choice.
“The budget guardrails were set in place to safeguard the fiscal health of our state,” Liebau said. “The General Assembly should not undermine the guardrails through budget gimmicks, and Gov. Lamont shouldn’t undermine the progress we’ve made by signing a budget [transfer plan] that allows the guardrails to be undermined.”
Collibee added that the governor’s strong support for these fiscal controls, as currently established, hasn’t changed. “The administration will utilize all available tools to assure the budget stays in balance and that the state’s strong financial position is protected,” he said.
Governor, legislators don’t see eye-to-eye on ‘fiscal guardrails’
But some legislators argue the state’s finances are overprotected.
Even though the preliminary 2024-25 budget has big holes, the state projects to have more than enough resources to cover them.
Besides the $300 million operating surplus built into that preliminary plan, a second program that bars legislators from spending a portion of volatile income and business tax receipts is projected to capture another $450 million next fiscal year, also to guard against deficits.
That’s at least a $750 million cushion that already exceeds the potential holes in the next budget.
And that projected $450 million “volatility adjustment,” as analysts call it, is expected to grow later this month after officials review updated state income tax return data.
In addition to all of that, Connecticut also holds a record-setting $3.3 billion in an emergency budget reserve it hasn’t tapped since 2017.
Many Democratic legislators say the “fiscal guardrails” are fine in concept but are calibrated to ensure state government saves more than it needs. Lamont and lawmakers have used about $7.7 billion in budget surpluses to mitigate Connecticut’s huge pension debt since 2020.
And since that began, 21% of all revenues — excluding those assigned to special budget funds — have gone into the pensions, either via required annual contributions or surplus deposits.
Pensions received between 10.6% and 12.5% of General Fund revenues annually between 2011-12 and 2018-19 under Lamont’s predecessor, Gov. Dannel P. Malloy.
And Democratic leaders say they won’t ask members to ignore pressing needs in core programs when the state can afford to address them and still finish in the black.
“The expenditure transfer bill is the only option that we’re offering at this point,” Senate President Pro Tem Martin M. Looney, D-New Haven, said. “We do not want to reopen the budget. That could potentially lead to cuts that we don’t want to make, that we think are bad public policy.”
House Speaker Matt Ritter, D-Hartford, echoed that position, insisting Democrats are committed to ensuring public colleges and universities, social services for people with disabilities, and mental health services for children are not allowed to erode.
Connecticut For All, a statewide coalition of more than 60 faith, labor and other nonprofit advocacy groups seeking to eliminate racial, economic and gender inequities, has argued the guardrails system needs adjusting and leaves too little to assist the state’s most pressing problems.
“A thoughtful leader takes in new information and reacts accordingly, even if that means changing directions on policy views,” said Leslie Blatteau, chair of the Connecticut For All steering committee. “This session, Gov. Lamont can be that strong leader by partnering with legislative leaders to make fiscally sound and socially just adjustments to the fiscal guardrails to identify, secure and appropriate the necessary funds our state needs.”
Administration discloses available pandemic relief after two-month wait
One option that could help Lamont reach a compromise with his fellow Democrats on spending involves the last of Connecticut’s $2.8 billion allocation from Congress through the American Rescue Plan Act, a 2021 statute to help states respond to the coronavirus pandemic. Most of Connecticut’s ARPA dollars have been expended, and states must commit all funds for use by Dec. 31.
ARPA funds are particularly advantageous because federal pandemic relief is exempt from spending cap limits. But they also are problematic because this source is temporary, and legislators and Lamont have spent much of it on ongoing programs. This means once ARPA has been exhausted, state funds must take the place of federal dollars, or state programs must be cut.
The administration told state legislators on Feb. 7, when the 2024 General Assembly session began, that at least $56 million in ARPA funds was available to complement the next state budget — and likely more. Agencies would be surveyed to get a clearer accounting of available funds.
After waiting a month with no update, legislative leaders chastised the Lamont administration in a CT Mirror article on March 15. A few hours after that article was posted, the administration ordered all agencies to report by March 25 on available pandemic relief funds.
And Collibee said Wednesday that tally showed roughly $200 million legislators could use.
That would provide roughly two-thirds of the minimum additional funding Looney and Ritter say their respective caucuses insist upon.
GOP: Don’t ignore constitutional responsibility to adopt a balanced budget
But leaders of the Republican minorities in the House and Senate said Democratic legislators and the governor should focus on trimming state spending and finding options to live within the guardrails.
They also shouldn’t look at federal pandemic relief as a fiscal cure-all, said state House Minority Leader Vincent J. Candelora of North Branford. Any ARPA dollars spent on education, social services or health care this year will simply postpone hard choices that must be made in 2025, when the ARPA funds are gone.
Candelora and Senate Minority Leader Stephen Harding of Brookfield also cautioned Democrats not to ignore the state constitutional amendment ratified in 1992 that mandates adoption of a balanced budget.
“The amount of general budget expenditures authorized for any fiscal year shall not exceed the estimated amount of revenue for such fiscal year,” it reads.
Technically, the preliminary budget for 2024-25 was projected in balance when legislators adopted it 10 months ago. The fiscal holes the Lamont administration is tracking developed later and are a common problem for preliminary budgets.
But that’s why those plans normally are adjusted, and put back into balance, before they take effect.
Even if it’s legal to allow a once-balanced budget with later-developed holes to take effect, Harding said, it’s clearly not what voters wanted when they ratified the balanced-budget provision.
“I don’t think that’s intellectually honest,” he said.
Candelora said Democrats could find dollars to patch some of the holes in the next budget by rejecting the raises Lamont negotiated and announced last month for most state employees.
That deal would provide most workers with a 2.5% general wage hike in July and a step increase, to reflect experience, in January. A step typically adds about 2 percentage points to a raise.
Lamont and unions struck a four-year deal in 2022 that granted a 2.5% general wage increase and step hikes for each of the first three fiscal years — from 2021-22 through 2023-24 — and various changes to benefits. They agreed to reopen and resolve compensation this spring for the final fiscal year, 2024-25.
Analysts haven’t issued new cost estimates for the proposed raises for the upcoming fiscal year.
But when the 2022 contract was ratified, the legislature’s nonpartisan Office of Fiscal Analysis estimated that if a 2.5% general wage increase and step increases were provided in the 2024-25 fiscal year, it would cost $173.8 million.
Democrats note, though, that the Republican minority often declines to submit its own budget proposal. In other words, it’s easy to criticize but harder to show voters how the GOP would solve a tough budget.
House and Senate Republicans did submit minority budget proposals last year, and Harding said his caucus is discussing whether to do one this spring.
But Candelora said the House GOP already has decided to craft a plan before the regular session ends on May 8. The alternative, he said, is to approve — by default — a plan that is likely to have big gaps. And if the legislature does nothing, he noted, the governor has special authority under state law to unilaterally order limited reductions in most areas.
“We all recognize this budget is falling out of balance,” Candelora said. “The General Assembly has an obligation to put forth budget adjustments. I’m not willing to gavel out and put it in the hands of the governor.”