Connecticut’s state government will have slightly more revenue than anticipated next fiscal year, but that doesn’t mean legislators will get to spend it as they hoped.
Gov. Ned Lamont’s budget staff and the legislature’s nonpartisan Office of Fiscal Analysis boosted projections Tuesday by $59.4 million, a very modest gain considering the preliminary budget lawmakers approved by 2024-25 totals $26 billion.
Projected growth in state income tax receipts more than offset mild declines in sales and cigarette tax revenues next fiscal year.
Revenue estimates for the current fiscal year effectively were unchanged, dropping $5.4 million, a margin equal to 1/41st of 1% of the General Fund.
“Connecticut remains on solid financial footing, particularly when you look at other states, several of which are facing deficits,” the governor said late Tuesday afternoon following the report’s release.
Analysts for Lamont and the General Assembly will issue another joint revenue forecast on April 30. That projection generally is viewed as the most definitive, supported by new data from the annual income tax filing deadline two weeks earlier.
Legislators traditionally rely heavily on that April 30 estimate before adopting or adjusting the budget.
The next state budget debate, which will begin when the 2024 General Assembly session convenes, is expected to be difficult.
Majority Democrats in the House and Senate are looking to add funds for child care, other social services, higher education and health care.
But the administration says the spending cap — which tries to keep most annual spending in line with the growth in personal income or inflation — won’t allow more than $30 million on top of the $26 billion lawmakers already approved for the fiscal year that begins July 1.
Further complicating matters, state agencies this fiscal year have collectively overspent their budgets by about $260 million. And analysts say many of the trends and other problems that caused cost overruns this year likely would continue in 2024-25.
In other words, before legislators even look to add funding for new initiatives, they may need to add more dollars to the next budget — and make some spending reductions — just to cover existing problems.
But House Speaker Matt Ritter, D-Hartford, and Senate President Pro Tem Martin M. Looney, D-New Haven, have said it will be hard to convince rank-and-file lawmakers to embrace that approach, given the state’s overall fiscal position.
Despite this year’s cost overruns, the state still expects to close this fiscal year with about $650 million left over. And next year’s preliminary plan projects more than $700 million in black ink.
Besides the spending cap, there are other budget controls — commonly called “fiscal guardrails” — helping to create these windfalls.
One guardrail anticipates cost overruns and forces legislators to build a healthy surplus into the budget when they adopt it. A second will intercept and save hundreds of millions of dollars in revenue before they can even be applied to the budget.
Connecticut has generated billions of dollars in state surpluses since 2018 due in part to these guardrails. Increases in state income tax rates ordered in 2011 and 2015, coupled with a robust stock market, also have contributed greatly.
“Our state’s fiscal guardrails have been essential to protecting core state services while paying down our unfunded liabilities and delivering the largest income tax cut in state history,” Lamont said.
Starting this year, the first state income tax rate cut since the mid-1990s will save many middle-income households about $300 per year while an expanded tax credit for the working poor will give those families about $200 more.
Lamont, a Greenwich businessman and fiscally moderate Democrat, is expected to adhere closely to those guardrails when he recommends adjustments to the 2024-25 budget on Feb. 7.
Minority Republicans largely share Lamont’s perspective.
“The guardrails clearly work, so they don’t need fixing,” said Senate Minority Leader Kevin Kelly, R-Stratford. “The fiscal pledges we have all made as state lawmakers must continue to be respected. We must stay within the spending cap and within our means.”
But others argue that those guardrails are saving excessively and are starving core programs, many of which have seen demand only grow since the coronavirus first struck in 2020.
Democratic legislators are expected to ask Lamont to work around these guardrails — possibly by shifting surplus dollars into future budgets or moving more expenditures outside of the traditional budget and spending cap systems.
“We are obviously looking for more flexibility,” Ritter said, adding that legislators still want to save dollars, only with a more balanced approach. “At some point we’re going to have conversations about paying long-term liabilities, having a robust rainy day fund and supporting our operating expenses.”
Looney added he remains optimistic that majority Democrats and the governor can find common ground in the coming months.
“I think that the needs we have to address are becoming more pressing all the time,” Looney said, adding that the current range of options for adjusting the next state budget “is not a realistic position going forward.”
