Facing a trifecta of challenges, Gov. Ned Lamont and Connecticut legislators are struggling to balance the state budget despite uncertain times now and in the future.
The factors include potential cuts in federal funding from President Donald Trump’s administration, rising costs in key programs like Medicaid, and volatile uncertainty on Wall Street that directly impacts crucial state tax collections.
Lamont has been strategizing with his commissioners to analyze the federal programs that might be cut so that they have a plan in place to react quickly. Among the issues, he said, is that Trump often changes his mind on issues like tariffs, and federal budget cuts are sometimes rescinded by administration officials or federal judges with temporary restraining orders.
At the same time, Republicans have criticized Democrats for over-reacting to potential cuts that have been mentioned but have not yet taken place.
“I don’t want to overstate what’s going on because every day it changes,” Lamont told reporters at the state Capitol in Hartford. “We’ve got to be ready because these cuts will be coming. I can’t stick my head in the sand. I can’t say it hasn’t happened yet, so why worry about it? We’re not an ostrich. … We are ready, and we are prepared.”
Lamont noted the recent losses of trillions of dollars in the stock market, even after Trump’s 90-day pause on his tariffs generated a huge, one-day spike in stock prices before falling back and up again in some of the most volatile days in stock market history. Business leaders and major investors have increasingly warned that the United States could be headed toward recession.
“We’ve got the potential of a severe recession again, given what you saw just in the last few days” in the stock market, Lamont said. “You double that down with the tax cuts coming from the White House, and we’ve got to be ready. You’ll never be ready for the Level 5 storm, but we’re ready for what we can anticipate. We do have $4 billion in our rainy day fund.”
One of the biggest issues facing legislators is deciding how to allocate $1.4 billion in surplus tax revenues that the state has been collecting since before the recent Wall Street downturn.
The $1.4 billion is collected under the “estimates and finals” portion of the state income tax and comes mainly from capital gains taxes on Wall Street that are paid largely by millionaires and billionaires in Fairfield County. The money is kept in a separate category under the “volatility cap,” created in 2017 by the legislature, which declared that lawmakers cannot spend the money as they had in the past.
Under current state law, the state must transfer the $1.4 billion in surplus tax collections later this year to the state’s pension funds in order to pay down debt.
But House Speaker Matt Ritter of Hartford called last week for changing the so-called fiscal guardrails and instead allowing the state to spend the money if needed to cover federal budget cuts.
House Republican leader Vincent Candelora — a friend of Ritter’s — said the legislature should make no moves to change the guardrails that have helped generate budget surpluses in recent years during Lamont’s tenure.
“Whether you put the frog in the pot and you turn it up slowly or you just throw it into boiling water, either way the frog is going to end up dead,” Candelora said. “So what I’m hearing is the Speaker wants to boil that frog slowly. I think it’s a mistake. We should not be dismantling the guardrails that have protected Connecticut from over-spending, protected us from tax increases.”
Lamont agreed with Candelora that the state should avoid making any hasty changes to the guardrails regarding the additional $1.4 billion. Ritter, though, says flexibility is needed despite predicting in advance that there would be blowback.
“We think that’s the most prudent action at this time,” Ritter told reporters in his Capitol office. “You’ve got to be prepared for whatever is coming. This is not being alarmist. … For anybody who wants to complain, do me a favor. Save the press release. Save the rhetoric. Drive to Washington. Convince them not to do this, and then we won’t have to do this. … It is a big deal. We don’t say it lightly.”
Federal money
The potential federal cuts have been a moving target that Lamont and legislators have been analyzing. While Congress has talked about reducing Medicaid, that has not yet happened. Potential cuts could range into the hundreds of millions of dollars, officials said.
“Medicaid is the biggest risk,” Ritter said.
Federal money on the list of concerns includes any money coming through the Federal Emergency Management Agency, known as FEMA. That includes $47 million in Bridgeport for flood control measures after the state narrowly avoided disaster during Superstorm Sandy in 2012 when the city could have lost a key substation to flooding.
Lawmakers are also concerned about $175 million in funds for a variety of public health programs, but Candelora said that money was COVID funding that was already going to expire.
Other cuts are on the table for education, veterans, mental health and addiction services, agriculture, and the state library, among others.
While Connecticut has decommissioned its last coal-fired plant in Bridgeport, Lamont said he was stunned that Trump has recently touted coal as an important energy source for the future.
“He’s the only guy I know who wants to have coal in his stocking,” Lamont said of Trump. “When you have those coal fumes coming downwind to Connecticut — you remember acid rain? You hadn’t heard that phrase in a long time. You’re going to start hearing it again.”
Deficiencies
Another issue facing Lamont and lawmakers is making sure that the state does not blow through the spending cap during the current fiscal year that ends on June 30.
In a gigantic state budget of $26 billion per year, the expenses are projected to be under the spending cap by only $500,000 — an infinitesimal amount on a percentage basis.
Both Lamont and state budget director Jeffrey Beckham say they have no intention of breaking the spending cap.
“We have the prospect of holding bills, and we would pay them in the next fiscal year,” Beckham told lawmakers on the budget-writing appropriations committee.
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The over-spending in various categories for the current fiscal year is about $540 million, but that number does not tell the whole story because tax collections and expenses are better in other categories. The latest overall surplus number for the $26 billion annual budget in the current fiscal year is nearly $400 million, according to the state comptroller’s office.
On the spending side, state officials are concerned about rising medical costs, including an increased number of patients going to hospitals and large increases in pharmacy costs for prescription drugs, including GLP-1s that are used to treat diabetes and obesity. Although the drugs have been on the market for years, they were more recently approved to treat obesity, thus increasing usage and the costs.
The state spent $40 million during the last fiscal year on GLP-1 drugs, and this year the total is expected to jump to $65 million, said Josh Wojcik, policy director for the state comptroller. The majority of the money is still related to diabetes, he said.
The fiscal situation can vary from department to department. The state tax department, for example, is running the agency for about $10 million less than originally projected due to reduced staff and expenses, including 70 unfilled positions.
State police overtime
At the state police, officials are projecting a deficit of $4.5 million in personnel costs that are driven chiefly by overtime costs that are among the highest across state government. With about 900 troopers, state police are seeking the best ways to deploy the staff in order to move troopers out of desk jobs and get them on the road.
“While we are beginning to realize some success in recent recruitments, having just graduated a class of 21 cadets, and starting a class of 50 to 60 cadets before the end of the fiscal year, it has been necessary to utilize overtime to support minimum staffing standards and ensure public safety and responsivity,” said Ronnell Higgins, the state public safety commissioner for the past 18 months under Lamont.
After pulling in the reins starting last November, state police are now anticipating a reduction of 8% in overtime by the end of the fiscal year on June 30.
Rep. Tammy Nuccio of Tolland, the ranking House Republican on the budget-writing committee, said she still has concerns, even after the recent overtime reductions, because police are predicting that the overtime will continue.
“We don’t want to reduce overtime and create any public safety issue,” Nuccio told Higgins last week during a committee hearing. “We have the minimum amount of troopers on” in areas east of Hartford.
“I want to make sure that we’re not cutting off our nose to spite our face,” Nuccio said. “We want to get them back out in the field. … The state simply doesn’t have enough troopers for the call volume we have.”
Higgins responded that overtime meetings are held monthly and the department is undergoing a staffing study as they seek the best ways to deploy the workforce.
“I am absolutely not looking at draconian measures,” Higgins said.
State statistics show that overtime in the state police is about $60 million per year, and Higgins said that overtime amounts to 5,000 hours per week, including shifts that have to be filled.
Recruiting new troopers has been difficult, Higgins said, because of “a lesser amount of people wanting to go into the profession.” In addition, he said some candidates are “not able to pass the high standards” and are “simply not employable as police officers.”
Recruiters have gone as far away as Virginia to obtain qualified candidates to come to Connecticut as new troopers.
Looking ahead, Lamont said Friday after the State Bond Commission meeting that officials will remain vigilant.
“We’re going to stay the course and control what we can control,” Lamont said. “But I’ve got to worry what happens in Washington. They represent over $10 billion of our budget, and thousands of so-called state employees are subsidized or paid for by the fed. So we watch that very carefully. I can’t avoid it. I wish I could.”
Christopher Keating can be reached at [email protected]
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