Efforts by Gov. Ned Lamont and the General Assembly to craft a new state budget got much easier late Thursday when analysts estimated surging income tax receipts and other revenues would add more than $580 million to Connecticut’s coffers this fiscal year and next combined.

Thanks to a $200 million boost this fiscal year, more than $2 billion should be left unspent by June 30, enough to easily cover $570 million in pledged investments in town aid and affordable child care and still provide $1.4 billion to reduce pension debt and bolster reserves.

And a $380 million revenue bump now anticipated for the next budget cycle could help Connecticut officials grapple with declining federal assistance for human service programs.

The legislature’s nonpartisan Office of Fiscal Analysis and the Lamont’s Office of Policy and Management reported that a controversial savings program, which has pulled billions away from other state programs since 2017, won’t slow down dramatically as projected earlier. Analysts now say the program will grab more than $1 billion annually, at least through 2030.

“This positive consensus revenue forecast shows our approach is working — steady growth, commonsense budgeting, and a focus on making Connecticut more affordable,” the governor said late Thursday afternoon, shortly after analysts posted the report.

CT can slash debt and still deliver pledged aid to towns, child care

Lamont reiterated his pledge to redirect some of this fiscal year’s projected savings from paying down pension debt to cities and towns after July 1 to help them ease local property tax burdens.

State income tax receipts tied to investment earnings and payments from certain business partnerships not subject to the corporation tax — a category that includes hedge funds — will collect $287 million more than anticipated before the fiscal year ends June 30, pushing collections in the off-budget savings program to almost $2.1 billion.

That was offset, somewhat, by revenues assigned to the actual budget dropping by an estimated $82 million. Most of that was driven by faltering corporation tax receipts.

This means the current $27.2 billion state budget’s General Fund, which was barely in balance, slips $70 million in deficit, a shortfall equal to a fraction of 1%.

But with the savings program now at $2.1 billion, Lamont and lawmakers can easily plug that $70 million gap, fulfill pledges to redirect $270 million to municipalities and $300 million to expand affordable child care, and still have more than $1.4 billion left to attack pension debt.

Connecticut governors and legislatures failed to save properly for pensions for seven decades prior to 2011, effectively forfeiting tens of billions in potential investment earnings and creating an enormous legacy of debt. The state still owes more than $33 billion, one of the largest burdens, per capita, in the nation.

And while the governor reiterated his plan to use some of this fiscal year’s saved dollars for purposes other than closing deficits or paying down pension debt, he also sent a message to lawmakers Thursday: Don’t go on a spending spree.

“Let me be clear,” Lamont said. “When revenues come in stronger, that doesn’t mean we start spending recklessly. It means we double down on what matters by making strategic investments, paying down debt and keeping Connecticut on stable financial ground. This is how we provide real, lasting relief for taxpayers.”

Legislative leaders from both parties still were analyzing the report shortly after its release just after 4:30 p.m.

But many of Lamont’s fellow Democrats in the legislature’s majority have argued for the past two years that Connecticut saves too aggressively, siphoning dangerously large amounts from town aid and other core programs and effectively forcing one generation to solve a problem created by three.

Since adopting strict budget caps in 2017, Connecticut has left more than $1.8 billion unspent per year, on average, since then. Nearly all those funds have been used to shrink pension debt or build reserves.

Still, those forced savings represent more than 8% of the annual budget, and for two decades prior to 2017, state government never had a surplus greater than 3.3%.

Analysts: Savings mandate will pull big dollars from budgets through 2030

The tension between savings efforts and core programs is likely to continue.

Analysts also projected in their latest report that legislators can expect about $375 million more in revenue next fiscal year than originally anticipated.

But they can’t easily touch more than 80% of that money — again because most of the growth involves income and business tax receipts captured by the savings program.

Analysts had predicted in January that the program would begin to slow down by 2028, capturing an average of $738 million between then and 2030. That’s less than half of what the savings mandate has collected, on average, during its first nine years.

But analysts reversed those expectations Thursday, predicting $1.1 billion per year would be taken away from the budget between 2028 and 2030.