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February 7, 2024

Lamont’s $26.1B budget plan takes a big bite out of bonded debt

RYAN CARON KING / CONNECTICUT PUBLIC RADIO Gov. Ned Lamont addressing the Connecticut legislature in 2019.

Gov. Ned Lamont will unveil a $26.1 billion budget Wednesday for the next fiscal year that features few new initiatives and a plan to dramatically reduce Connecticut’s bonded debt using rapidly accumulating reserves from its transportation program, according to sources familiar with the plan.

The package, which makes less than $90 million in adjustments to the preliminary $26 billion budget lawmakers enacted last June for 2024-25, maintains planned funding for public colleges and universities, even though higher education officials warned they would need more to avoid deficits and program cuts.

Lamont also delivered on a pledge to dedicate more than $40 million extra for early childhood development, though a portion of that addition involves scaling back added funds legislators sought for magnet schools and other K-12 education programs.

The governor also delivered on $3.5 million in state fee reductions, though no major tax cuts are included. Those fee changes were aimed at application fees in under-staffed fields including nurses, teachers and child care workers.

Those changes are modest, but the governor and many legislators said Connecticut had to ensure state finances remain stable after ordering major tax cuts in each of the last two sessions. Those cuts included state income tax rate reductions and credit adjustments expected to save filers an estimated $460 million in the upcoming fiscal year.

Connecticut budgets in biennial cycles, and the plan Lamont will present to the General Assembly on Wednesday represents adjustments to the second year of the biennium, the fiscal year that begins this July.

The governor, a fiscal moderate, has been warning legislators for months to prepare for a lean plan, even though the next budget is expected to finish considerably in the black. Budget controls enacted in 2017 and renewed last February, including spending and borrowing caps and two other savings programs, leave little legal flexibility. 

But Lamont’s proposal also hinges on repurposing more than $50 million in unspent federal COVID-relief grants, which provide great fiscal flexibility because they can be spent outside of the cap system. But the shifting of these American Rescue Plan Act funds is expected to spark many questions from legislators, specifically: How much money have state agencies that received federal grants left unspent?

Lamont’s budget director, Jeffrey Beckham, will disclose full details of the budget at 10:30 a.m. during a briefing in the Legislative Office Building.

“We’re going to have a lean budget” in 2024, Lamont warned earlier this winter. “We’re going to stay true to our north star and keep this state moving forward for everybody.”

Taking a big chunk out of bonded debt

Keeping the state moving forward, the governor says, includes sticking with those budget controls, commonly called “fiscal guardrails,” that helped build a $3.3 billion rainy day fund and collected another $7.7 billion in surplus that was used to retire pension debt.

But the governor has been accused of accumulating too many surplus dollars when it comes to the budget’s Special Transportation Fund.

The $2.1 billion fund is on pace to close $241 million or 11% in surplus when the fiscal year ends June 30, according to Lamont’s office.

And it finished the 2022-23 fiscal year with a 15% surplus, equal to $277 million, according to final numbers from the state comptroller’s office. And that was despite a 13-month gasoline tax holiday that returned about $330 million to motorists. Most of that cost, $240 million, occurred during the 2022-23 fiscal year.

The administration estimates the STF’s reserves — the fund that holds all its annual surpluses — will total $911 million after this fiscal year, a tally that exceeds more than 42% of the entire STF.

The transportation fund is supported by two fuel taxes, a portion of the sales tax and a recently added highway mileage levy on commercial trucks.

Republicans have accused the Democratic governor of hoarding too much revenue and urged him to repeal the highway mileage tax.

Construction industries and trades have urged Lamont and the state Department of Transportation to launch more capital projects. The STF funds DOT operations and pays the debt service on the annual state borrowing that, coupled with federal grants, finances repairs to Connecticut’s highways, bridges and rail lines.

Lamont’s budget does assume annual borrowing for capital work will grow from $875 million this fiscal year to $1 billion in 2024-25.

But he also would take $500 million from the STF reserve and use it to reduce Connecticut’s more than $7.4 billion in outstanding transportation bonding debt.

With more than $80 billion in unfunded pension and retiree health care benefits and bonded debt combined, Connecticut is one of the most indebted states, on a per capita basis, in the nation.

Higher ed funding stays as planned, which means deficits

The governor’s budget proposal also would maintain the previously approved funding levels next fiscal year for the University of Connecticut and for the system run by the Board of Regents for Higher Education. That latter includes the community colleges, four regional state universities and the online Charter Oak State College.

Basic block grants for all these higher education units are increasing. But they also received temporary funds in recent years from surplus and federal COVID-relief grants. And the decline from those sources will exceed any increases in ongoing funding.

The Board of Regents for Higher Education is using buyouts to trim staff and other cost-cutting measures to offset most of a $140 million deficit next fiscal year. Tuition and fees already will be up 11% next fall at community colleges, and 7% at universities, from two years earlier.

But the system still was hoping for an extra $47 million from the governor’s budget. 

The University of Connecticut, the state’s flagship university, is facing a $70 million gap in 2024-25 for its main campus in Storrs and its satellite campuses. But while UConn didn’t get extra resources there, sources said the administration did propose extra financing in the state bond package for capital projects at the university.

Early childhood gains, while K-12 increase is scaled back

The governor’s new budget adjustments also reportedly include more than $40 million for child care, in addition to a $50 million increase already approved by the governor and legislators last June for the 2024-25 fiscal year.

But a portion of that extra funding for child care will come from unspent federal pandemic relief. The administration confirmed last week that it also would redirect a portion of the $52 million increase legislators ordered last year for magnet and charter schools.

Even with those changes, though, most of the $150 million spending increase legislators ordered last June to reform K-12 education funding in 2024-25 would remain under the governor’s plan.

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