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May 19, 2023

CT budget deal approaches, but the bottom line is blurry

MARK PAZNIOKAS / CT MIRROR Unionized workers protested at the state Capitol on Wednesday as budget talks continue.

Those unsatisfied with the next state budget should remember it features a built-in cushion topping $300 million, which could be tapped if approved spending proves to be too lean, House Speaker Matt Ritter, D-Hartford, said Thursday.

But while Gov. Ned Lamont’s administration and minority Republican legislators agree with the speaker that all sides are a few days away from a bipartisan budget for the next two fiscal years, they expect everyone to live with the bottom line.

That potential surplus, they say, is for true emergencies and is not to be tapped just because staying within the approved budget is hard.

“I think we’re in a very, very, very, very good place,” Ritter told reporters during a Thursday press conference as he summarized budget talks late Wednesday between legislative leaders and Lamont’s budget staff.

Majority Democrats in the House and Senate are trying to put together a package for the next two fiscal years that delivers a major state income tax cut, bolsters aid for local education and social services, averts any funding cuts at public colleges and universities, stays within the state’s stringent cap on spending — and can draw strong bipartisan support.

Those last two objectives have proven most challenging.

Democrats say the coronavirus pandemic and inflation have pushed many core programs and services into crisis, and the cap simply won’t allow sufficient growth to meet all needs.

Democrats have proposed carrying $260 million of this fiscal year’s $2.9 billion projected surplus into the next budget cycle. 

Because those surplus dollars technically were appropriated this fiscal year, they wouldn’t count against the spending cap in the coming biennium.

The majority party also wanted to use an accounting maneuver to divert as much as $400 million in revenue outside of the cap system so it could be sent to cities and towns.

Lamont and Republicans pushed back, arguing that the spending cap is a key part of a larger series of budget control measures that have helped Connecticut dramatically improve its short-term fiscal position in the past five years.

But Lamont, a fiscally moderate Democrat, has joined minority Republicans in insisting that the next budget avoid as many gimmicks as possible.

Leaders have confirmed that the $400 million revenue intercept proposal no longer is under consideration.

Sources close to the talks say the next budget will feature some aggressive savings targets — more than $100 million — to be achieved after the next budget is in force.

This technique, often used to help reduce deficits during the 2010s under then-Gov. Dannel P. Malloy, typically results in the Executive Branch freezing staffing or severely limiting new hires — which, in turn, often slows the operation of many state programs.

This is likely to produce opposition from state employee unions and other labor groups, which argue most state agencies already face a staffing crisis.

Recovery For All CT, a coalition of more than 70 labor, faith and other civic organizations, assembled roughly 1,500 people who rallied outside of the Capitol on Wednesday evening, urging officials not to allow the spending cap to produce a budget that ignores growing needs in staffing, social services, health care and education.

Darnell Ford, a children’s services worker at the Department of Children and Families, talked at the rally about the toll underfunding is already taking on Connecticut’s children.

Ford said that staffing issues at DCF’s Albert J. Solnit Children’s Center already have forced some units to close at its south campus.

“There are children that are waiting in emergency rooms for weeks on end — desperate for our services while they experience acute crisis,” Ford said. “This is at a time where 1 out of 7 high schoolers in Connecticut are seriously contemplating suicide. It doesn’t have to be this way.”

But Ritter said that while the new budget won’t please everyone, it will expand aid for local schools and social services. 

Sources said public colleges and universities would receive more than Lamont recommended in the upcoming biennium but also would be expected to find new efficiency savings in the 2024-25 fiscal year. It was unclear Thursday whether the budget under development would provide public colleges and universities with the funding needed to maintain current services in the 2023-24 fiscal year, which begins July 1.

But Ritter suggested there could be some extra relief if some of the funding decisions prove too difficult to live with.

Since 2017, the state has imposed what’s become known as the “revenue cap.” 

It essentially ensures the legislature doesn’t adopt a budget with no margin for error. More specifically, it restricts lawmakers from spending more than 98.5% of all projected General Fund revenues.

That is expected to translate into a cushion of more than $300 million. 

It’s not the only fiscal safety net in the budget. A second, larger program forces the legislature to save a portion of quarterly income and business tax receipts — before they even are assigned to the General Fund. This savings program, known as the volatility adjustment, has helped produce surpluses in the billions of dollars in recent years and is expected to capture more than $1.4 billion in the next biennium.

Because of the windfalls the volatility adjustment has produced, some Democratic leaders have begun to question the need for the second, smaller savings program.

And Ritter suggested Thursday that the $300 million cushion built into the General Fund might be tapped in the next budget cycle if approved spending levels prove too lean.

“So, although you don’t want to rely solely on that,” he said, “that $300 million, right,  gives you the buffer that I think you need it to help you, if you’re awful.”

But the Lamont administration has said consistently that these savings programs only should be tapped in the event of an emergency. Otherwise the funds, at the end of the fiscal year, should be used to pay down Connecticut’s considerable long-term debt.

House Minority Leader Vincent J. Candelora, R-North Branford, also said Republicans aren’t interested in approving a new budget with an unspoken understanding that state agencies can overspend the bottom line by hundreds of millions of dollars.

“It’s not something that Republicans would be interested in,” he said, adding that some sectors of state government, and public colleges and universities in particular, need to focus on spending reforms and cutting costs.

Another tool legislators and Lamont have used to try to reduce the bottom line in the next budget is to shift spending for some core programs off budget and to pay for it using temporary federal pandemic relief.

Lamont had proposed using $20 million of its relief for a one-time purpose, specifically to finance a plan to erase up to $2 billion in medical debt.

The governor’s plan involves working with one of the nonprofit organizations that have been negotiating with hospitals nationally to purchase medical debt — tied to patients from poor households — at extreme discounts. Those charities then cancel the debt.

Lamont said he hopes a $20 million state investment could ultimately lead to $2 billion in debt being retired.

But Ritter said he believes the most recent version of the state budget under development uses federal pandemic aid for other purposes.

The administration quickly responded Thursday, though, saying only that the proposal remains on the bargaining table and that no final decision has been reached yet.

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