Less than 24 hours after bumping heads, Democratic legislative leaders and Gov. Ned Lamont stood on the cusp of a tentative deal for a new state budget that reportedly would assist municipalities and hospitals while preserving Connecticut’s ability to dramatically reduce its pension debt.

House Speaker Matt Ritter, D-Hartford, and Senate President Pro Tem Martin M. Looney, D-New Haven, both confirmed they were close to a deal but declined to say how they and administration officials solved disagreements regarding budget caps, revenue trends and a new taxing arrangement with hospitals.

“We are nearing a deal. We are in substantial completion,” Ritter said, predicting the plan likely would draw support from Republicans as well as from the Democratic majority.

“It’s certainly very promising,” Looney said, adding he believes the agreement will benefit cities and towns and the hospital industry.

Both leaders qualified their pronouncements, though, noting they still had to brief rank-and-file lawmakers on the progress of budget talks Monday night.

Lamont’s administration also was tight-lipped about negotiations. But the governor’s budget spokesman agreed both sides were closing in on an agreement.

“Gov. Lamont and legislative leaders are aligned on a shared vision: a balanced budget that makes transformative investments in education, housing, municipal aid and the social services safety net that so many Connecticut families rely on,” said Chris Collibee, spokesman for the Office of Policy and Management. “Those collaborative discussions are progressing well, and a finalized agreement is coming soon.”

Negotiations hit a brief snag over the weekend, though, regarding the cap that tries to keep annual budget growth in line with household income.

Legislators and the governor want to bolster grants for cities and towns in the fiscal year that begins July 1. Democratic lawmakers specifically proposed $170 million extra for school districts and $100 million more in non-education aid.

But depending on how the grants were financed, both had the potential to push spending beyond cap limits.

Further complicating matters, while the $100 million in non-education aid would be one-time assistance, legislators insisted extra funds for schools would continue year after year.

Lamont, a fiscal moderate, has been reluctant to support spending that would exceed the cap on a recurring basis and would prefer legislators pay for extra town aid by finding offsetting cuts elsewhere in the budget.

These additional funds for communities would come from a special savings program that the state has used since 2020 to eliminate $10 billion of its pension debt. Connecticut still owes more than $33 billion in unfunded pension obligations, one of the highest per-capita burdens in the nation.

Both Looney and Ritter praised the governor late Monday afternoon, saying his willingness to find common ground should help lawmakers resolve a new budget before the regular legislative session ends May 6.

“I was very grateful to the governor for his flexibility and his sense of the importance of getting a consensus resolution,” Looney said. “He showed really leadership in putting that first and foremost.”

Ritter said, “The governor really set the tone in these negotiations,” adding a near-deal was made possible by “everybody having to give a little bit.”

Compromises also reportedly were essential to solving concerns about Connecticut’s hospital tax, which expires June 30 and needs to be renewed to help both the state and the industry.

State government collects hundreds of millions from facilities via the tax — then returns those funds as part of a complex arrangement to qualify for extra federal Medicaid reimbursements.

Lamont proposed reducing a previously approved tax hike from $375 million to $100 million, while boosting payments back to hospitals by $140 million — leaving facilities better off by a collective $40 million.

Legislators from both parties have pushed for even more resources for an industry severely harmed by the coronavirus pandemic. Hospitals also have struggled for decades with Medicaid rates that cover an ever-shrinking share of the cost of treating poor patients.

“Finalizing a new hospital tax model that begins to address the state’s Medicaid funding challenges is essential to improving health care affordability and access for all residents,” the Connecticut Hospital Association wrote in a statement last week.

Democratic legislators had embraced a House Republican proposal to shift payments to hospitals outside of the budget and spending cap system, which would allow for more assistance than Lamont had proposed.

But the administration also is worried how much revenue the state can afford to share with hospitals, and with cities and towns, given other challenges on the horizon.

Connecticut still is assessing the full impact of congressional cuts to Medicaid and other human service programs expected to reduce federal assistance sent here by hundreds of millions of dollars next fiscal year and growing annually through 2034.

And while the state has a $4.3 billion rainy day fund, a Lamont administration analysis last fall showed even a moderate recession could drain reserves and push Connecticut into deficit within four years unless adjustments are made.

Revenue concerns reportedly prompted the governor and legislative leaders to scrap not only the administration’s proposal for a $500 million one-time tax rebate — which would have sent $200 to most taxpayers in late October — as well as legislative proposals to deliver big state income tax relief by expanding credits.

Lack of direct tax cuts concerns GOP

Republican lawmakers say Connecticut still can afford to deliver direct relief to taxpayers, provided the state does a better job controlling the growth of costs.

House Minority Leader Vincent J. Candelora, R-North Branford, declined to predict whether additional aid for towns alone would be sufficient to attract GOP votes for a new budget, saying it would depend on whether hospitals are protected and whether overall spending is kept in check.

House Republicans argue Connecticut could save roughly $150 million next fiscal year simply by delaying thousands of new state employee hires throughout the next fiscal year.

But Candelora praised Democratic leaders for listening to his caucus’s proposals in recent weeks.

“We are asserting our priorities that we proposed in our budget and trying to move the needle in a direction that Republicans would support,” he added.

Senate Republicans proposed the biggest tax-cutting proposal this year, and Greenwich Republican Ryan Fazio, the ranking GOP senator on the Finance, Revenue and Bonding Committee, said there’s no reason Connecticut’s next budget can’t do more to assist middle-income households.

“I think it’s a major failure of the state government if it fails to deliver tax relief,” he said. “All you need to do is curb the growth in spending.”

Democrats counter that Fazio’s claim is suspect since Senate Republicans haven’t proposed any detailed budget that would show how it would deliver tax cuts and balance Connecticut’s books.