While it may take months to learn the full impact of the sweeping tax and social safety net reductions that Congress and President Donald Trump ordered in July, Connecticut officials have identified some crucial questions, even though they lack answers.

Will Gov. Ned Lamont and the General Assembly — who sit on unprecedented cash reserves — adjust a Connecticut spending cap that greatly constrains their ability to replace vanishing federal aid with local dollars?

Should officials here focus only on state programs losing funding, leaving municipal school districts, nonprofit human service groups and other entities also facing cuts to fend for themselves?

And with federal tax cuts worth more than $4.3 trillion through 2034 tilted heavily in favor of wealthy households, should Connecticut seek to tax some of that windfall and redirect it to the poor and middle class via state tax adjustments?

To pay for that huge federal tax cut, Congress would strip almost $1 trillion from Medicaid over the next decade while also cutting into green energy, student loans and nutrition assistance.

Early projections from the nonprofit Center on Budget and Policy Priorities, a Washington-based policy group, are that more than 170,000 Connecticut residents could lose Medicaid coverage. Another projected 9,000 who receive subsidized care on the health exchange could lose coverage as their premiums, in some instances, quadruple.

With a record-setting $4.1 billion rainy day fund, a state budget that just closed with a $2.6 billion surplus — the second-highest in Connecticut history — and more black ink forecast for years to come, “there’s ample revenue to make folks whole,” said House Speaker Matt Ritter, D-Hartford.

Connecticut can’t necessarily solve every challenge created by the “One Big Beautiful Bill Act” of 2025, the speaker added. But given all the resources at state officials’ disposal, if it doesn’t at least mitigate the most painful cuts, at any level of government, “then what are we doing?” Ritter said.

Despite resources that outstrip those of most other states, Connecticut also is a national leader in debt. It entered last fiscal year with almost $80 billion in bonded debt and unfunded obligations to retirement benefit programs, a problem created largely by seven decades of poor savings habits prior to 2011.

“We’re going to do everything we can to protect the most vulnerable,” Lamont, a fiscally moderate Democrat, told the CT Mirror on Wednesday. “I think that’s sort of a core responsibility we’ve got.”

But the governor also said Connecticut’s spending cap is designed to reflect what taxpayers can afford. 

“It’s not simply a matter of saying ‘let’s increase the spending cap so we have more money to spend,” he added. “It also is loosely tied to [personal] income, so you have revenues that match expenses.”

Big decisions likely won’t be reached until 2026 and after

State legislative leaders have said since last spring that they anticipate a late September or October special session to adjust Connecticut’s spending and otherwise respond to cutbacks in federal aid.

And while a special session remains likely, leaders concede that most of Connecticut’s adjustments likely won’t happen this fall, for several reasons.

First, federal agencies have been slow to provide states with detailed explanations on the policies behind these cuts, making it hard for Connecticut officials to determine the full fiscal impact.

State lawmakers tasked Lamont with providing a report on this issue in early August. And while an administration assessment still is expected, possibly as soon as Friday, it likely will identify general areas of concern rather than offer exact dollar estimates.

Many of the changes ordered by Congress and President Trump won’t take effect until after the midterm congressional elections in November 2026. That means Connecticut officials will have plenty of time not only to analyze how programs here will be affected but also to monitor how other states are reacting to these changes.

Medicaid cuts force showdown over CT’s spending cap

Even though many of the details are lacking, some big challenges can be identified now.

Mitigating the Medicaid cuts likely would cost Connecticut in the hundreds of millions of dollars annually.

The Center on Budget and Policy Priorities’ analysis says Connecticut could be forced to pay tens of millions extra to support food stamp benefits while about 34,000 residents, including children, are at risk of losing at least some assistance.

At first glance, those numbers are insurmountable for a state that just closed the fiscal year with a $2.6 billion surplus equal to 10% of its entire General Fund. State analysts project black ink easily topping $1 billion through at least 2028.

But the cap blocks legislators from spending most of those dollars, which have been used since 2017 to build reserves and reduce pension debt. Many of Lamont’s fellow Democrats argue Connecticut has over-corrected from past poor savings habits and siphons too much from  health care, education, town aid and other core programs.

The $55.8 billion budget Lamont and the General Assembly approved in late spring for this fiscal year and next comes under the spending cap by a razor-thin $900,000 in the first year — less than one-half of 1% — and by just $75 million in 2026-27. That’s far short of the extra state spending many legislators envision to replace vanishing federal aid.

Still, the Connecticut cap system has long exempted spending to comply with federal mandates or court orders.

Ritter said he believes most spending eventually ordered done to offset federal cutbacks would be fit this exemption, adding he would ask Attorney General William Tong to opine on the matter soon.

“The federal government did this to us. We did not do it to ourselves,” the speaker said, adding that “anyone who has the audacity to say these are not new federal mandates, they are just as bad as the Republicans in Washington.”

Lamont, a champion of Connecticut’s spending cap, said he agrees some state spending in response to federal cutbacks may be cap-exempt. How much, he added, will become clearer once fiscal impacts and other details of the One Big Beautiful Bill Act are released.

Lamont faces pressure no matter how he responds to Trump cuts

But the governor can expect plenty of pressure on how to interpret the spending cap issue, from across the political spectrum.

Connecticut’s only solution to cutbacks in federal aid can’t be more state spending, said House Minority Leader Vincent J. Candelora, R-North Branford.

“We’ve got to have broader policy conversations,” said House Minority Leader Vincent J. Candelora, R-North Branford. If lawmakers want to replace vanishing federal dollars with more state funds in one program, they should find offsetting spending reductions in others, he said.

Connecticut’s adherence to budget caps, dubbed “fiscal guardrails” by supporters, save hundreds of millions of dollars annually in required pension contributions while bolstering the state’s credit ratings, which often means lower interest rates.

“The ‘guardrails’ have been crucial in restoring Connecticut’s credibility with Wall Street,” said Carol Platt Liebau, president of The Yankee Institute, a conservative policy group based in Hartford. “The resulting credit rating upgrades have made it cheaper for the state to borrow for essential capital projects like school construction and highway repair, saving taxpayer money. Weakening these policies signals a return to fiscal instability and could jeopardize our standing with the investment community.”

But the State Employees Bargaining Agent Coalition, which includes nearly all state employee unions, says agencies have been decimated by decades of staffing reductions, and further cuts would worsen that crisis.

“Our state agencies are the first line of defense for Connecticut families — and many of them are already stretched to the breaking point,” the coalition wrote in a statement. “We cannot protect our most vulnerable residents, respond to crises, or deliver the services our communities rely on with skeleton crews and starvation budgets.”

Democratic and Republican legislative leaders, as well Lamont, also said they’re willing to consider new funding for cities and towns to help them deal with lost federal aid.

Although federal cutbacks in this area weren’t as severe as some feared, tightening of Medicaid and food stamp eligibility rules likely will disqualify Connecticut students from free and reduced school lunches, translating into reduced federal nutrition grants for local K-12 districts.

More children attending class hungry “is going to put more pressure on the school system to meet their needs, whether that is hunger, mental health, whatever it is,” said Fran Rabinowitz, executive director of the Connecticut Association of Public School Superintendents and a former superintendent of the Bridgeport and Hamden systems.

The Connecticut Conference of Municipalities launched an ad campaign last March attacking Lamont for allowing the state’s overreliance on property taxes to worsen during his tenure.

CCM Executive Director Joe DeLong said many communities can’t afford to ask local taxpayers to replace vanishing federal aid.

“There’s been a fairly consistent trend of pushing responsibilities downhill,” he said, adding that as Republicans in Congress tout a bill that cuts federal taxes and state officials point with pride to their huge budget surpluses, “we just continue to see [municipal] property taxes … rise.”

Looney: Middle class, poor should benefit more from federal tax cuts

The One Big Beautiful Bill Act will reduce taxes at the federal level significantly over the next decade.

It not only extends marginal federal income tax rates first reduced in 2017 but increases the standard deduction, adds $200 to the $2,000 federal child tax credit, and boosts the cap on state and local tax deductions to $6,000.

But according to The Tax Policy Center at the Urban Institute & Brookings Institution, nearly 60% of the tax benefits go to households earning more than $217,000 per year. And those making more than $460,000 would get more than one-third.

And because of the severity of cuts to Medicaid and food assistance, the lowest-earning 40% of American households would lose income, on average, according to the Washington-based Economic Policy Institute, a left-leaning think tank.

State Senate President Pro Tem Martin M. Looney, D-New Haven, agrees with Ritter that the spending cap can’t be an obstacle to Connecticut tapping its flush coffers to blunt the pain of federal cuts.

But Looney, a longtime advocate for a more progressive Connecticut income tax, says lawmakers also have work to do on the tax side of the state budget. In particular, he said, they should boost state taxes on households that benefit the most from the federal changes, capturing a portion of their windfall.

Connecticut then should use those funds to finance more tax relief for its middle class and poor, he said.

The federal tax and budget changes are “a cynical bet on human nature,” Looney said, adding the president “is betting that the middle class, which gets minimal relief … will ignore the fact that the bulk of the tax change is going to the very wealthy.”

Looney has been a strong supporter of creating a new state income tax credit for low- and middle-income families that would provide as much as $600 per child. That proposal stalled in this year’s General Assembly session, though legislators did create a flat, $250 credit — regardless of the number of children — for families earning about $67,000 or less.

“We know exactly where the money is: in the pockets of the ultra-wealthy and corporations raking in billions from Trump’s tax cuts,” said Norma Martinez HoSang, director of Connecticut For All, a coalition of more than 60 progressive grassroots organizations. “We need to raise progressive revenue and direct it where it belongs—into our schools, hospitals and communities.”

But Senate Minority Leader Stephen Harding, R-Brookfield, warned the GOP would fight any effort to raise taxes, on any income group, to finance tax breaks for another.

“How is that tax relief?” he said, adding the Democratic-controlled General Assembly is more likely to use any tax hike on the wealthy to bolster state spending, not to finance tax breaks for the poor and middle class.

Lamont said Wednesday he also would oppose such a move, though he understands Looney’s perspective.

“It’s just insane that they [federal officials] are cutting taxes for the richest people and paying for it by cutting Medicaid,” the governor said. But Lamont also has argued repeatedly that income redistribution should happen at the federal level, not through state tax systems. Raising Connecticut taxes on the rich only would prompt them to flee the state, he added.

State Rep. Josh Elliott, a liberal Democrat from Hamden who is running for governor in 2026, said Lamont — who is considering seeking a third term — needs to reverse his longstanding reluctance to boost taxes on the wealthy or watch federal budget changes push thousands of low-income Connecticut families closer to, or deeper into, poverty.

“If state government does not ask the wealthy to be covering those holes,” Elliott added, “then Ned will be at the helm of the largest [effective] middle class and working class tax increase in our history.”