When legislators wrapped the 2025 General Assembly session, they watered down new investments in health care and special education and scrapped income tax relief for middle class families, believing finances weren’t robust enough to support it.

But lawmakers learned this week from Gov. Ned Lamont’s administration that Connecticut had nearly an extra $1.3 billion to spare — enough to fund their proposals several times over.

And leaders of the Democratic majority called Thursday for a review of the state’s budget-adoption timetable. While forecasting always has been challenging given Connecticut’s heavy reliance on fluctuating, investment-related income, the stakes have become greater since officials here adopted budget caps that aggressively limit what they can spend.

In its first monthly projection of the new fiscal year, Lamont’s budget staff upgraded revenue estimates by $856 million, with 80% tied to investment-related income tax receipts, or earnings from certain business partnerships that don’t pay the corporation tax — a category that includes hedge funds.

That comes not long after the Lamont administration disclosed revenues for the 2024-25 fiscal year — which wrapped June 30, just 26 days after the legislative session ended— were $420 million greater than expected.

“It’s too much money not to have a conversation about is there a better process,” House Speaker Matt Ritter, D-Hartford, said Thursday, adding these last-minute surges in revenue “puts us at a disadvantage” crafting a state budget normally adopted in May or early June.

“We need a new approach to reflect on and take action on trends as they may be occurring,” said Senate President Pro Tem Martin M. Looney, D-New Haven.

The Lamont administration has noted on several occasions that projecting revenues — and income tax receipts in particular — is hardly an exact science.

The income tax, expected to generate more than $13 billion this year, is by far the state’s largest revenue engine, funding nearly half of the overall, $27.2 billion state budget.

But almost one-third of those income tax dollars come not from salary withholdings, but rather from capital gains, dividends, and other investment earnings that fluctuate significantly from year to year. Additionally, many wealthy filers seek and receive extensions, reporting their earnings months after the normal, April 15 filing deadline.

Lawmakers and Lamont build a new budget each spring based largely on an April 30 revenue forecast from analysts for the executive and legislative branches. Traditionally, data from wealthy filers has been limited.

But it’s more complicated than that.

The Lamont administration has been more conservative in its revenue forecasting than its predecessor.

During Lamont’s seven years in office, revenue projections have grown an average of $285 million in the weeks between when legislators adjourn their session and the fiscal year wraps on June 30. That’s more than three times the $92 million average gap lawmakers dealt with between 2011 and 2018 under then-Gov. Dannel P. Malloy, according to state budget records.

And surging revenues just before the fiscal year closes typically translates into extra revenue in the next budget.

The governor’s budget director, Jeffrey Beckham, warned this week that, “It is very early in the fiscal year and there are many factors that could impact our state’s economy and revenue,” including federal budget cuts and tariff policies, varying interest rates and international affairs.

Still, Lamont’s fellow Democrats in the legislature’s majority have been frustrated to learn of the surging revenues this summer — after they’d scaled back several initiatives based on reports the money wasn’t coming.

An Appropriations Committee proposal to add $84 million for special education grants next fiscal year became just $30 million, well below what local school districts need to meet rising costs.

Only $15 million of a planned $75 million increase in Medicaid payments to doctors who accept low-income patients was delivered. Connecticut hasn’t raised rates in a broad-based fashion since 2007, leaving many insured patients unable to find physicians who will treat them. Leaders in January said a $250 million infusion ultimately is needed to reverse a health care access crisis.

And hopes for a new $600-per-child state income tax credit aimed at hundreds of thousands of households eventually became a flat $250 payment — and only to families making about $67,000 per year or less. It would distribute about one-eighth of the projected $300 million cost for a full child tax credit. 

“Every year legislators are working off of estimates of our tax dollars that are billions less than what we actually have to allocate,” said Constanza Segovia, organizing director for Connecticut For All, a grassroots coalition of more than 60 faith, labor and other progressive groups. “And once again we see Lamont surprising us with more money he kept from our communities. How many times are we going to do this?”

Lamont administration officials note budget caps might have blocked more spending anyway, but lawmakers used several accounting maneuvers to work around those in the new budget, often collaborating on them with the governor.

For example, they shifted $300 million outside the formal budget — and spending cap limits — to launch a new program to grow child care program slots dramatically by the early 2030s.

And Democrats increasingly have pressed Lamont, a fiscal moderate, to revise the budget caps that he has championed, arguing they are too aggressive, draining essential funding from municipal aid, health care, education, social services and other core programs.

Republican leaders, who also support the budget caps, have also been frustrated by learning of last-minute revenue surges after the legislature has adjourned.

The House and Senate minority leaders, Vincent J. Candelora of North Branford and Stephen Harding of Brookfield, both told the CT Mirror earlier this summer that unsuccessful GOP efforts to block tax hikes on corporations would have been aided by the knowledge that revenues already were on the rise.

GOP lawmakers were frustrated in June 2022 when they pitched a plan to cut hundreds of millions of dollars in income, fuel and transportation taxes, but were blocked by Lamont and Democrats, in part by arguments that revenues wouldn’t support the cuts.

By mid-July 2022, the administration analysts identified an extra $568 million in tax revenues.

Candelora agreed Thursday that legislators must reassess their budget adoption and revenue forecasting processes.

“We’re all scratching our heads seeing the large quantity of revenue continuing to come in,” he said.

Legislative leaders still are planning a special session for late September or October to address cutbacks in federal assistance to Connecticut ordered this summer by Congress and President Donald J. Trump. 

Ritter said he would ask the Finance, Revenue and Bonding Committee to conduct hearings into the budget adoption and revenue forecasting issues and wouldn’t rule out reforms being proposed soon.

“It’s definitely going to be conversation for special session this fall,” he said.