Gov. Ned Lamont recently compromised on a budgetary spending cap he calls “sacrosanct,” offering a limited path to bolster child care next fiscal year.

But just two weeks later, the governor’s fellow Democrats in the legislature tested his limits, pledging to order $40 million in additional special education grants next week that could burst this year’s cap.

“The numbers just have to add up,” the governor said Wednesday shortly after a mid-morning announcement by legislative leaders that he called a “surprise.”

“I don’t need the legislature to say ‘Add on 40 here, add on 40 there. We’ll figure out how to pay for it later,’” Lamont added. “We’ve done that for the last 30 years in this state and made us a big problem.”

Spending cap has posed obstacles for decades

The spending cap, which keeps budget growth in line with household income and inflation, has been creating problems for legislatures and governors since its enactment in 1991. But has become increasingly troublesome since 2017, when it was paired with a package of additional caps and savings mechanisms that supporters call “fiscal guardrails.”

These provisions have generated unprecedented surpluses averaging $1.8 billion or about 9% of the General Fund annually for the past seven years. About $12.5 billion has been used to bolster reserves and reduce debt.

Critics say this has leached vital resources, not only from education aid to municipalities but from other core programs like health care and social services.

At the same time, though, Connecticut is amid what’s expected to be a decades-long-effort to retire more than $54 billion in unfunded pension and retiree health care obligations, a legacy of debt largely created by improper savings efforts between 1939 and 2010.

Lamont tried to stake out middle ground on the “guardrails” with majority Democrats in the legislature when he proposed his new budget on Feb. 5 for the next two fiscal years.

His plan included shifting roughly $300 million in each of the next two fiscal years from one savings program back into the General Fund. He also recommended creating a new account — outside of the regular budget and spending cap — to support child care programs and jump-starting it with $300 million from this fiscal year’s projected $443 million operating surplus.

But House and Senate leaders noted Wednesday that local school districts face a growing crisis in surging special education costs.

The School and State Finance Project, a Connecticut-based education policy group, estimates the $181.1 million Excess Cost Grant — the state’s child program to assist students with special needs — will provide $108.2 million less than what districts need to cover their expenses.

Lamont has proposed adding $40 million to the Excess Cost Grant and another $14 million to other special education programs, but not until the 2026-27 fiscal year.

But legislative leaders said they would vote next Tuesday to increase the program by $40 million this fiscal year, which runs through June 30.

CT budget cost overruns remain a problem despite surplus

And, at first glance, Connecticut has the resources to pay for it.

Besides the $443 million operating surplus, the “guardrails” also require legislators to save another $1.4 billion in unstable income and business tax receipts, revenues deemed likely to fluctuate greatly from year to year and therefore too risky to spend.

But most of that operating surplus is due to better-than-expected tax receipts, not frugal spending.

In fact, the administration estimated last month that all agencies, collectively, were on pace to overspend their respective budgets by $429 million.

And Lamont’s budget office warned in February that at least $166.5 million of these cost overruns likely can’t be averted before the fiscal year ends on June 30, meaning these departments will need a supplemental appropriation from the legislature later this spring. 

But there’s only $167 million in available space under the spending cap. Once these extra costs are approved, the gap is a mere $500,000, well shy of the $40 million lawmakers want to spend.

The legislature can legally exceed the spending cap with a three-fifth’s vote of the House and Senate and the written permission of the governor. But Lamont, who had been reluctant to revise any budget controls prior to this year, told business leaders last month that while there could be some changes, he viewed the spending cap as “sacrosanct.”

Democrats not seeking to legally exceed the cap

But House Speaker Matt Ritter, D-Hartford, and Senate President Pro Tem Martin M. Looney, D-New Haven, said Wednesday they have no plans to legally exceed the cap.

Rather, they said, they would appropriate the $40 million for special education now and then work with the Executive Branch to drive down spending in other areas before June 30.

“My staff believes this is manageable,” Ritter said adding that “$40 million is not a massive number.”

Looney, who has been calling for reforms to the spending cap and other “guardrails” for years, agreed that the immediate focus must be on helping local districts in financial crisis.

“It’s important to help now,” he said.

Lisa Hammersley, executive director of the finance project, called the proposed $40 million infusion “a significant step forward.”

“We know much more work remains to ensure all students, including those with special needs, receive the funding, services and high-quality education they deserve,” she said.

But when Lamont was asked whether he would sign an emergency aid bill next week, the governor was both concerned and noncommittal.

“If you want to add forty here, take away forty somewhere else,” he said. “But just don’t leave me a problem. Leave me a solution as well.”

Lamont’s budget spokesman, Chris Collibee, put things more bluntly.

“There is no reasonable way that another $40 million in additional appropriations can be accommodated in the current fiscal year,” he said. “We would be incurring new bills when we have not even arranged to pay for the current bills.”

And while Republican legislators also have been pushing for more aid to municipalities, particularly for special education, one GOP leader was wary about increasing efforts to maneuver around the spending cap.

“It’s a difficult issue that needs to be reconciled,” said House Minority Leader Vincent J. Candelora, R-North Branford, and added that Democratic legislators don’t have a great track record at finding cost savings in the state budget.

Candelora said Republicans always are ready to work with their Democratic colleagues to find spending reductions. He said the majority should review the state budget proposal the House GOP pitched one year ago.

That plan, which the full legislature didn’t adopt, would have added nearly $80 million to special education grants this fiscal year. But it also relied on ending public health care for undocumented women and children while continuing to downsize the state’s workforce.