CT lawmakers must save $2.5 billion in next biennial budget

State government’s controversial budget controls will force legislators to save $2.5 billion in the next biennial budget — nearly 50% more than they expected to withhold from education, health and child care, and other core programs, analysts project.

Meanwhile, the revenues legislators can spend next biennium grew by a far-more-modest 1.3% or nearly $620 million, according to a new report from budget analysts for Gov. Ned Lamont and for the General Assembly. And not all that growth is good news. About one-sixth of this increase reflects greater federal reimbursements for a Medicaid health care program beset by growing caseloads and skyrocketing costs.

“There’s a compromise here that’s easy to strike,” said House Speaker Matt Ritter, D-Hartford, one of the leaders who’s been urging Lamont to modestly scale back savings efforts — which have expanded budget reserves and reduced pension debt — and to invest more in struggling core programs. “Everybody come to the table and let’s figure it out.”

Two sources of state revenue tied closely to investment earnings — quarterly income and business tax receipts — will rake in $5.3 billion this fiscal year, or 70% more than they did in 2017. That’s when legislators first decided some of the receipts from these special revenue categories couldn’t be spent in the budget.

Those sources, historically, have been unstable, drawing big sums one year and much less the next. And expectations for this savings program, or “volatility adjustment,” were modest when it launched.

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But instead, it’s exploded, taking an average of $1.4 billion or 6% of the General Fund off the table annually in its first seven years — and never less than $530 million in any year. Fiscal analysts had reported last January that the savings demands would lessen soon. By late April, though, they said any slowdown in savings would be modest.

And now they’re saying the savings pace won’t slow down substantially before 2028. They project $1.4 billion in quarterly income and business tax receipts will be saved this year, and just shy of $1.3 billion in each of the next three.

Lamont, who frequently touts this savings program and other budget controls as “fiscal guardrails,” said this week’s report is good news.

“This consensus revenue forecast shows the strong belief on the part of businesses and residents that Connecticut is headed in the right direction,” Lamont said.

And while he didn’t indicate whether he would reverse his earlier opposition to tempering savings efforts, he added that: “The work to make our state a more affordable and equitable place to live and work continues. And as we approach the next legislative session that will be a key focus of our efforts. The decisions we make in Hartford have a direct impact at kitchen tables in every community in our state, and our budgets must reflect the needs and desires of our families to improve their lives and those of the generations that follow.”

Many of the governor’s fellow Democrats, who hold large majorities in the House and Senate, say these savings efforts have been too aggressive since 2017, leeching valuable resources from core services and pushing them into crisis.

The Medicaid rates Connecticut pays doctors and other providers that serve low-income patients haven’t been adjusted across-the-board since 2008 and critics say many can’t find physicians willing to treat them.

Public colleges and universities are projecting large deficits in the next budget cycle. The federal pandemic relief that Connecticut used to prop them up over the past three years — when budget controls limited available state tax receipts — has nearly been exhausted.

Connecticut’s pension debt remains considerable, topping $37 billion entering this year. But many legislators note it is a problem created over seven decades between 1939 and 2010, and can’t be eliminated quickly. Even given the debt that’s been eliminated by the savings program, unfunded liabilities are projected to trouble Connecticut’s budget well into the 2040s.

Revenue growth offsets big Medicaid costs

But while the savings program experienced the most growth in the report, there was some good news involving the revenues legislators can spend.

With state income tax receipts tied to paycheck withholding also on the rise, revenues for the current budget now stand $275 million above original expectations for this fiscal year.

That’s important because the General Fund, which covers about 90% of government’s operating expenses, has been having problems since the fiscal year began July 1. Specifically, there have been about $400 million in cost overruns, more than half of which involved Medicaid.

The fund already would have slipped into deficit had legislators not launched the plan with a built-in, $300 million cushion.

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Given the cost overruns and the enhanced revenue forecast, that projected surplus now stands at about $180 million, or a little less than 1% of the General Fund.

Analysts also reported this week that General Fund revenues for the next, two-year state budget also have improved modestly.

Revenues projections are up about $240 million for the fiscal year that begins July 1, 2025, and about $380 million for 2026-27.

“Our revenues remain strong in virtually every area, reflecting that Connecticut’s economy is growing, thanks to low levels of unemployment and businesses moving and expanding across our state,” said Jeffrey Beckham, Lamont’s budget director.

But most of that growth is expected to be eaten up by raises Lamont will negotiate this winter with all state employee unions. The state’s largest health care workers’ union, SEIU 1199 NE, also is expected to ask legislators to bolster Medicaid significantly to cover raises for most nursing home workers statewide and staff at group homes for people with developmental disabilities.

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Legislative leaders say there also must be funds to address pressing needs in other social service programs, child care, public colleges and universities and special education costs in the K-12 system.

Connecticut For All, a progressive coalition of more than 60 faith, labor and other civic organizations, said Tuesday that analysts showed there is enough revenue to fund all these programs and pay down pension debt — provided the budget controls are reformed.

“These latest numbers are telling the same story — the fiscal roadblocks are broken,” said coalition director Norma Martinez HoSang. “We cannot continue to ignore billions in stable revenue – projected through the end of the decade — while flirting with disaster by way of emergency cuts, divestment and underfunding. There’s a growing number of families who can’t help but worry about their wallets and wellbeing. We must invest in the services and infrastructure our communities are desperate for.”

 Keith M. Phaneuf  is a reporter for The Connecticut Mirror (https://ctmirror.org/ ). Copyright 2024 © The Connecticut Mirror.