CT 'fiscal guardrails' steer legislators to lean budget despite surplus

The legislature's Appropriations Committee ran headfirst Tuesday into the state budget spending cap.

In a bipartisan vote of 40-12, the Democrat-controlled panel endorsed a $51 billion budget for the next two fiscal years that would soften the big funding cut Gov. Ned Lamont proposed for public colleges and universities while dedicating significant new funding for federally qualified health clinics.

But lawmakers had to forgo dreams of offering much more than Lamont did for local school districts, child care services, nursing homes and the private nonprofit agencies that deliver most state-sponsored social services.

"We have not made everybody happy this year," said Sen. Cathy Osten, D-Sprague, co-chairwoman of appropriations. "We have stuck to the confines of the spending cap. … We know that everyone is going to want more."

Appropriations Committee members, already frustrated by the administration's failure to curb high vacancy rates throughout many Executive Branch agencies, also canceled hundreds of unfilled positions.

"The number of [unfilled] positions in state government is horrific," said Rep. Toni E. Walker, D-New Haven, who predicted those vacancies, as well as the tremendous constraints placed by the cap, would dominate discussions between top lawmakers and the Lamont administration as they try to negotiate a final biennial budget plan before the regular 2023 General Assembly session closes June 7.

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At first glance, the committee's plan seems very similar to Lamont's. It would appropriate $25.1 billion in the fiscal year that begins July 1, just $37 million more than what the governor recommended on Feb. 8 and about 3.7% above current spending.

But spending under the committee plan would grow another 3.2% in 2024-25, surpassing Lamont's proposal for the second year of the biennium by $374 million.

More important, it would carry $260 million of this current year's $3.3 billion projected surplus forward into the next biennium and use about three-quarters of that funding to support programs in 2023-24. And because those surplus dollars technically were appropriated this fiscal year, they wouldn't count against the spending cap in the coming biennium.

Many Republicans on the committee also supported the budget, noting that difficult choices had to be made.

"There are definitely going to be things in here … that some are going to love, and some are going to hate," said Rep. Tammy Nuccio, ranking House Republican on the committee.

Lamont, a moderate Democrat, has been a big advocate for the cap, which tries to keep most spending growth in line with inflation and changes in household personal income.

"I appreciate the Appropriation Committee's hard work to deliver a document that appears to respect the fiscal guardrails that have been a key component of our state's success over the past few years," Lamont said Tuesday. "We’re reviewing the details of the legislature's spending plan, look forward to meeting with them to discuss their proposals, and will work with them to pass an honestly balanced budget that provides growth, opportunity, and affordability for Connecticut's residents, families, and businesses."

But the cap has become a growing source of frustration for progressive Democrats who say the system was designed to preserve — not reverse — the extreme wealth and income equality that locks many Connecticut residents in deep poverty.

The cap's architects also never anticipated the health care, social and economic chaos created by the coronavirus pandemic, which critics say only has exacerbated Connecticut's inequities.

Connecticut closed last fiscal year with a record-setting $4.3 billion surplus, a staggering total equal to nearly one-fifth of the entire budget. This year's $3.3 billion projected cushion would be the second-largest in state history. And Connecticut already has $3.3 billion in its emergency budget reserve — equal to 15% of the General Fund, the maximum allowed by law.

But most of that surplus will go to pay down the state's massive pension debt, rather than bolster other programs, because of the cap and other budget constraints passed by the 2017 legislature and renewed last February by lawmakers and Lamont.

"The people of Connecticut need the governor to act as the hero we elected him to be by investing in our communities rather than allow the spending cap to block progress toward a more equitable Connecticut," said Puya Gerami, director of Recovery for All CT, a coalition of more than 70 faith, labor and civic organizations. "By taking bold action to address the spending cap, Gov. Lamont has a chance to chart a new path toward a better future and write a legacy for himself … a future where everyone in Connecticut has good health care to lead healthy lives, high quality child care and public schools, colleges, and universities for their kids, a good job to support their families, and a safe place to call home."

The state's public colleges and universities potentially escape a deep cut under the committee plan, but Connecticut's flagship university still would take a hit in the next budget cycle.

Lamont recommended $887 million for the University of Connecticut, its satellite campuses and its Farmington-based health center over the coming biennium. That's down from the nearly $1.1 billion in assistance they received across this fiscal year and last. The system needs roughly $1.2 billion to fund current services in the coming biennium.

Lamont proposed $923 million for the community colleges and regional state universities, down from $1.04 billion received across this fiscal year and last.

The administration says that as enrollment has dropped in recent years, the universities should have recognized that some of the funding they’ve received since 2020 was emergency pandemic relief that would eventually expire.

But Walker and Osten have argued that higher education — and the regional universities and community colleges in particular — still haven't recovered from the added expenses and revenue losses caused by the pandemic.

Much of the $260 million shaved off of this year's surplus under the committee plan would go to public colleges and universities. UConn, which stands to lose more than $300 million over the biennium under the Lamont plan, would be down about $200 million under the committee proposal. The legislators’ proposal also would close much of the gap for community colleges and regional universities.

Though the committee's decision not to include funding for a planned charter school in Danbury prompted some Republican opposition to the budget, three progressive Democrats also cast "no" votes: Sens. Matt Lesser of Middletown and Mae Flexer of Windham and Rep. Greg Haddad of Mansfield.

Haddad, whose district includes UConn's Storrs campus, noted that were hundreds of millions of one-time dollars from surplus and emergency federal pandemic aid not applied in the committee budget to public colleges and universities, the potential for imminent layoffs and tuition hikes would be very real.

"I’m gravely concerned about that direction," he said.

UConn spokeswoman Stephanie Reitz called the budget proposal "a positive step," adding that "We look forward to working with the General Assembly and governor to explore ways to address our remaining shortfall with the hope that permanent funding can be part of the solution."

Terrence Cheng, president of the regional university and community college system, said that even with the relatively better proposal from the Appropriations Committee, it still wouldn't cover all basic operating needs for the next budget cycle.

Legislators also had hoped to do more for municipal school districts and child care services than Lamont had, but they had to settle largely for matching the governor.

The committee budget includes $136 million extra over the next two years to keep the Education Cost Sharing grant program for local school districts on a growth schedule initially adopted in 2017. Lamont also proposed staying the course.

But legislators began the 2023 session talking about accelerating that growth schedule even more. Walker and Osten said the cap simply blocked that idea.

"Every day, hundreds of thousands of Connecticut students walk into schools that don't have the funding, staff and services to meet their needs," said Lisa Hammersley, executive director of the School and State Finance Project. "This is an unacceptable reality that, unfortunately, the budget proposal released today does not fully address."

The committee budget does include an extra $20 million, though, to hold some school districts harmless that otherwise were scheduled to see their grants drop under the ECS formula.

But legislators did not endorse a proposal to bolster meals funding for public schools. Advocates said between $90 million and $103 million annually is needed from the state to cover gaps in funding not covered by local or federal dollars.

"We’re shocked that the Appropriations Committee has not proposed any funding for school meals for all, given the crisis we saw last fall when federal funding for school meals ended," said Lucy Nolan, policy director for End Hunger CT! "Meal debt soared. Kids went hungry and couldn't concentrate or learn. … This budget proposal makes no sense."

Similarly, lawmakers have been talking about improving on the funding increase Lamont proposed for Connecticut's embattled child care agencies — another industry left reeling economically by the pandemic. Instead, the committee ended up matching the governor's proposals.

That includes $67.5 million over the next budget cycle for rate hikes for child care providers, $15.5 million in the 2025 fiscal year for state-funded school readiness programs, and $35 million in emergency federal pandemic aid for a one-time boost through the CT Care 4 Kids program, a partnership between the state and various child care services.

Other key stakeholders in the state budget fared worse than school districts and child care providers.

Nonprofit social service agencies said earlier this year that the state payments they receive annually are down more than $480 million once adjusted for inflation and that the pandemic and inflation also have forced many to shrink programs and cut staff.

Lamont recommended no increase for the agencies, while the committee offered $20 million extra next fiscal year — a 1% increase — that would continue in 2024-25.

"It is beyond disappointing and defies understanding that with a current-year surplus of more than $3 billion, the budget being considered by the Appropriations Committee does not include a meaningful and much-needed funding increase for services provided by Connecticut's community nonprofits," said Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance. "First the Governor's budget, and now the Appropriations Committee have effectively called for a cut in services for people with addiction needs, for those with intellectual disabilities, for people who need shelter, for children and adults with behavioral health needs, for people coming home to make new lives after incarceration, and for many more vulnerable Connecticut residents."

Meanwhile, the state is transitioning into a new methodology to support nursing homes that serve thousands of residents on Medicaid.

Because of that, both Lamont and the committee would cancel nearly $64 million in inflationary rate adjustments otherwise due facilities over the next two fiscal years.

Matthew Barrett, president and CEO of the Connecticut Association of Health Care Facilities, called this a "significant setback" for an industry already recovering not only from the pandemic but also from last summer's 40-year high in inflation.

Nursing homes and nonprofit social service agencies also both complain of staffing crises, arguing they face significant pressure to offer higher wages to attract health care workers.

The Appropriations Committee budget does make some new investments in health care.

The package carries $32 million from this current fiscal year's surplus into 2023-24 to support federally qualified health centers, one of the chief sources of health services for patients in many of Connecticut's poor urban centers.

The budget also includes:

The committee budget does not recommend a $2 million expenditure proposed by Lamont for the next fiscal year to support individuals coming to Connecticut to access contraceptives and abortion services from states that restrict access to these services.

Lawmakers also have been bumping heads with Lamont for more than a year about staffing vacancies in many state agencies, and the committee budget reflects that battle.

The panel joined the governor in retaining funding for 206 unfilled positions at the Department of Transportation. Legislators increasingly have begun to press the DOT to accelerate its ability to launch new highway, bridge and rail construction projects.

But Walker and Osten had warned that if vacancies remained unfilled for too much longer at other agencies, legislators would seek to remove funding.

The committee budget would cancel 24 positions at the Office of Policy and Management — the administration's chief fiscal and planning agency — as well as 100 posts each at the departments of Social Services and Emergency Services & Public Protection.

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Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut's transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.