Gov. Ned Lamont will propose a $28.7 billion budget Wednesday that would launch a $200-per-person tax rebate, wipe out most of a planned hospital tax hike and preserve modest new funding for K-12 schools and social services, according to sources familiar with the plan.

Lamont’s blueprint for the fiscal year that starts July 1 also would further eliminate occupational licensing fees, boost research and development tax credits and again urge lawmakers to order universal free school breakfast in Connecticut schools.

The governor’s proposal, which he plans to deliver to the General Assembly shortly after 12 p.m., would boost spending about 4.4% or $1.2 billion above current levels. And it would spend $85 million more than a preliminary budget for the 2026-27 fiscal year that lawmakers and Lamont adopted last June while falling a razor-thin $1.1 million under the spending cap.

But while he and the General Assembly took steps earlier this winter to offset a portion of the nearly $300 million in federal tax credits Connecticut households recently lost to help purchase affordable health insurance, the governor’s budget adjustments do not include an ongoing state investment to mitigate that loss in future years.

A big rebate, smaller tax and fee cuts

Lamont, who is seeking reelection this November to a third term in office, hopes both fellow Democrats who control the General Assembly and minority Republicans will support his plan to offer distribute a $500 million sales tax rebate among roughly 2.2 million Connecticut residents.

Lamont’s plan would direct $200 to individuals earning less than $200,000 per year and $400 to couples making less than $400,000.

And though the rebate technically would be paid out of Connecticut’s sales tax receipts, which support nearly $5.3 billion out of a $24 billion General Fund, the giveback would not force deep cuts to the state budget. The governor would replenish those lost dollars by temporarily adjusting a controversial savings program expected to capture more than $1.8 billion this year.

Though the rebate is expected to grab the most attention, it’s not the only relief proposal Lamont will offer.

The governor is asking legislators to expand an administration proposal it accepted last year to eliminate various occupational and health care worker licensing fees, saving about $16 million per year among an estimated 160,000 people.

The administration also wants to expand existing research and development tax credits to various limited liability partnerships and other small businesses that don’t pay the corporation tax, saving them about $25 million annually.

Hospital tax hike would be scaled back but still faces pushback

Lamont’s new plan calls for a previously ordered tax hike, which prompted widespread objections from Connecticut’s hospitals, to be much smaller in scope.

The hospital provider tax is a complicated levy that raises funds for the state. But it’s also a tool to leverage more Medicaid dollars from Washington, which Connecticut invests — along with its own resources — back in hospitals.

Lawmakers adopted a plan last June that asked hospitals to pay an extra $375 million annually, starting in 2026-27, with the state sending back an additional $140 million per year.

But hospital leaders balked, warning that the industry already loses money under this arrangement and saying the tax hike would push that imbalance to dangerous levels.

Hospitals sued Connecticut in 2015, arguing the provider tax was draining hundreds of millions annually from health care and violating federal Medicaid rules. The lawsuit was settled in 2019, and the state began making efforts to ease burdens placed on the industry.

Lamont now wants to reduce the new tax hike from $375 million to $100 million while preserving the earlier plan to boost payments to hospitals by $140 million annually.

But the industry also was weakened financially during the early years of the coronavirus pandemic, and some legislators expect hospital resistance to any type of tax hike.

Holding the line on health care, social services and education

Lamont’s new budget would maintain previously approved new investments in several programs.

The governor and lawmakers agreed last June to boost long-neglected Medicaid rates for physicians and other care providers who treat the poor, though the effort was modest.

They added $15 million this fiscal year to bolster payments, and that investment was slated to climb to $45 million in 2026-27. The governor’s new proposal maintains that effort.

But legislative leaders have said these provider rates, which hadn’t been adjusted since 2007, need a $300 million infusion to encourage enough doctors to start accepting more low-income patients.

Similarly, the community-based nonprofits that deliver most state-sponsored social services to people with disabilities and patients struggling with mental illness and addiction say they lose hundreds of millions annually under state payment schedules that haven’t kept pace with inflation for decades.

Lamont’s new budget preserves an earlier deal to boost spending in 2026-27 by about $150 million over levels from 2024-25.

And the governor also is asking lawmakers to maintain existing programs to bolster aid to K-12 schools.

His plan maintains a $95 million increase he and lawmakers began this fiscal year for the nearly $2.4 billion Education Cost Sharing program, the chief operating grant for municipal districts. Though the program’s annual payout has grown by about $340 million or 15% since Lamont took office in 2019, cities and towns say they lose about $400 million yearly because the program has lagged inflation for more than a decade.

Lamont’s budget preserves a $40 million increase in special education funding he and legislators began in 2024-25 and another $30 million bump they added this fiscal year. It also retains an extra $10 million starting July 1 to support innovative approaches to delivering special instruction to students.

Higher ed will likely need to continue to drain its reserves

The governor and legislature last year began pushing public colleges and universities to draw down on their reserves following reports last March that the Connecticut State Colleges and Universities system had stashed more than $600 million, which represented roughly half of its operating budget.

The University of Connecticut and its Farmington-based health center had more modest reserves.

But Lamont and lawmakers asked all higher ed units to tighten their belts.

And the governor’s plan largely maintains funding levels he and lawmakers previously had scheduled for each unit in 2026-27.

UConn would lose about $13 million in assistance from the General Fund next fiscal year for its main branch in Storrs and its regional campuses under the governor’s plan, which would provide only about 85% of the support the university’s Board of Trustees is seeking.

The CSCU system would receive about $20 million more next fiscal year under the governor’s plan but also is expected to tap its reserves heavily once again to keep its budget in balance.