One skirmish over the CT budget is over, but the big battle looms
Shahrzad Rasekh / CT Mirror
At the opening of this year's legislative session, Gov. Ned Lamont's administration informed lawmakers that hundreds of millions of dollars made by investing COVID relief grants were kept out of the state budget since 2021.
At first glance, last week’s budget brinkmanship between Gov. Ned Lamont and the General Assembly’s Democratic majority was over a mundane issue.
When would Connecticut take $300 million out of its $6.5 billion pile of unused cash to make mandatory Medicaid payments to clinics, social service agencies and other providers that treat the poor?
But beneath this procedural conflict was a much bigger battle over the budget controls that helped generate the state’s $4.1 billion rainy day fund — accumulated largely since Lamont took office in 2019 — and the $2.4 billion surplus projected for this fiscal year.
Lawmakers used loopholes for years to avoid a showdown with the fiscally moderate governor and to spend billions outside of a cap system many complain saves excessively to the detriment of education, health care and other core services.
But the chief loophole, nearly $3 billion in emergency federal COVID grants that could be spent regardless of cap limits, has largely been exhausted.
And as other workarounds also become problematic, Democrats now refuse to constrain programs — at least not while an eight-year explosion of government reserves continues.
Lamont ended last week’s standoff late Thursday, agreeing to the first exception in 18 years to a spending cap that limits most budget growth to increases in household income or inflation. That will allow lawmakers to authorize $300 million next week for Medicaid payments, even though that action will push this fiscal year’s $26 billion budget marginally over the cap by at least $25 million.
Had the governor not made this concession, providers were expecting that state payments owed in late May would be pushed back until after July 1, a delay some said would make them unable to cover payroll.
More importantly, the spending cap exception will open the door for Democrats and Lamont to compromise on a new two-year state budget, because roughly $300 million extra also will be appropriated to support the next budget cycle.
But with the governor and minority Republicans still championing these budget controls and many Democrats insisting the extra funding — though helpful — won’t reverse years of fiscal neglect, last week’s struggle could be the first of several for years to come. The budget controls, which last were set in 2017, are largely fixed by law and contract until July 2028, but still can be adjusted with the governor’s consent.
Ritter: No new budget ‘If you don’t solve this Medicaid puzzle’
“If you don’t solve this Medicaid puzzle,” House Speaker Matt Ritter, D-Hartford, said during a mid-morning press conference last Thursday, “I don’t know how it all gets paid for.”
The speaker was referring not just to the latest payments owed providers who treat Connecticut’s poor but to planned investments over the next two years in K-12 education, public colleges and universities, municipal aid, social services, nursing homes and other health care programs.
At first glance, Connecticut has the resources it needs to handle all these challenges.
The state has amassed close to $12.5 billion in surpluses since 2017, which represent 8% or more of the General Fund. The $2.4 billion cushion projected for this year represents 10%.
Lawmakers have used these post-2017 windfalls to build what was a tiny $212 million emergency reserve — barely larger than 1% of the budget — to a record-setting $4.1 billion, and to pay down more than $8.5 billion of the massive pension debt Connecticut incurred between 1939 and 2010. The state still owes more than $35 billion. And the Reason Foundation, a libertarian think-tank, last year ranked Connecticut’s per capita pension debt highest in the nation.
Critics, including some Democrats in the legislature, nonetheless say the state has overcompensated for its past poor savings habits, stashing cash too aggressively and weakening services for one generation to fix a debt problem created by three.
A spending cap exception of $300 million cannot offset the billions siphoned out of programs and into reserves and pensions over the last seven years, they add.
“We cannot continue to excuse the sufferings of our communities in order to irresponsibly manage our long-term liabilities,” said Norma Martinez HoSang, director of CT For All, a progressive coalition of faith, labor and other civic groups.
Critics of the savings programs cite many shortfalls:
- Connecticut hasn’t broadly adjusted Medicaid rates for doctors who treat low-income patients since 2007. A 2019 analysis by KFF, the health care think-tank formerly known as Kaiser Family Foundation, found that Connecticut’s Medicaid rates for most specialists ranked 42nd among all states.
- The Connecticut Conference of Municipalities launched an advertising campaign this spring attacking Lamont for allowing the state’s overreliance on property taxes to worsen even as Connecticut’s coffers swell. Communities lose more than $400 million annually because statutory education grants — general aid, special education and funds for charter and magnet schools — haven’t kept pace with inflation, CCM says.
- Nonprofit agencies serving clients with intellectual disabilities or struggling with mental illness say state payments effectively are down 30% since 2007 because they haven’t kept pace with inflation, costing providers hundreds of millions of dollars annually. “The safety net is ripping, whether people want to admit it or not,” said Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance.
- And the state’s largest health care workers union recently set a May 27 strike deadline for about 6,400 caregivers at dozens of nursing and group homes, saying members can earn more serving fast food than they can assisting elderly residents and clients with disabilities.
“Every day there’s something more,” Ritter said, adding that a more comprehensive debate over budget controls is unavoidable in the coming years.
Lamont, GOP still expect Democrats to make hard choices
Lamont’s budget spokesman, Chris Collibee, said the administration will continue working with legislators, but “the governor’s position has been clear throughout this process: the budget … must adhere to all constitutional and statutory requirements.”
Spending more than the cap permits this fiscal year means legislative leaders must secure not just bare majorities but 60% votes of approval in the House and Senate.
That comes with some political risk to Lamont, who must declare a state budget emergency before the limit can be surpassed — and who has not announced whether he will run for a third term next year.
State officials have legally exceeded the spending cap seven times since it was created in 1991 but not since 2007. That’s when Republican Gov. M. Jodi Rell and a Democratic-controlled legislature, with GOP support, appropriated $690 million above the limit to significantly boost municipal aid and payments to doctors and other providers that treat the poor.
But after a severe recession pushed state finances deep into the red and triggered a historic $1.8 billion-plus tax hike in 2011, legally exceeding the cap became politically taboo.
Given the political sensitivity that surrounds the cap, the Lamont administration also has pushed Democrats to be more frugal. But it hasn’t always been successful.
Public colleges and universities’ budgets currently are propped up with roughly $270 million in federal pandemic grants that expire next fiscal year. The Democrat-controlled Appropriations Committee recommended a $55.7 billion two-year budget this spring that replaces much of that vanishing aid with state dollars.
But the Lamont administration notes that public colleges and universities have amassed more than $1 billion in reserves in recent years and should be required to spend some of that massive cushion down before getting more help from the Capitol.
House Republicans note that both the Appropriations Committee and Lamont failed to budget about $230 million requested by the comptroller’s office to cover contractually obligated health benefits for retired state workers over the next two fiscal years combined.
“I think we need to be honest about where we are and where we’re going,” said House Minority Leader Vincent J. Candelora, R-North Branford.
Connecticut will be hard-pressed to continue prioritizing paying down pension debt if it allows spending to grow quickly as it did for decades prior to 2017, he said.
The House GOP leader added that this past week’s Medicaid billing fight was unnecessary. Democratic legislators and Lamont ignored projections one year ago that showed Medicaid costs were surging, opting not to budget more or trim coverage levels to offset the anticipated demand.
House Republicans also say Connecticut could save tens of millions of dollars annually by ending Medicaid coverage for undocumented adults and children, an idea that Democrats consistently have rejected.
Lamont, GOP also struggle to stay under spending cap
But Democrats counter that Lamont and the GOP have their own struggles when it comes to budget controls.
Lamont, who called the cap “sacrosanct” during a January meeting with state business leaders, needed several gimmicks to keep the two-year spending plan he proposed in February under the limit.
Besides underfunding health care for retired state workers, Lamont also proposed paying for the $60 million-per-year Town Aid Road municipal grant with borrowing, which is spending-cap exempt, rather than including it in the budget. Towns can use TAR funds for capital projects, but many also use them to pay for winter snow plowing — a service not normally financed over many years with interest costs.
And after pledging to bolster Connecticut’s flagging child care industry, the governor recommended creating a $300 million fund outside of the budget and spending cap rules to support new investments in this area for many years to come.
House Republicans recommended a similar shift off-budget to back child care in the biennial plan they proposed earlier this month, while the Senate GOP declined to propose any state budget in this cap-constrained environment.
Democrats add they’ve taken great care to respect Lamont’s top fiscal priorities throughout his tenure, sometimes at the expense of public services.
The governor opposes raising taxes on wealthy households to finance greater state spending or tax relief for the poor or middle class, a position many of his fellow Democrats don’t share. And while the Finance, Revenue and Bonding Committee has endorsed some wealth-redistribution tax measures during Lamont’s tenure, legislative leaders haven’t included any in the budgets sent to the governor’s desk.
“They want no revenue increases and yet they want us to basically cut all of the things we think are important?” Ritter said. “Good budgets aren’t free. They cost money.”
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