Gov. Ned Lamont has ordered mid-year budget cuts from public colleges and universities while warning all agencies to tighten their belts — despite projections Connecticut’s budget will close next June 30 a whopping $1.6 billion in the black. Lamont’s budget director, Jeffrey Beckham, called the move necessary given projections that government spending will shatter approved limits by nearly $400 million this fiscal year, with more than half that problem caused by Medicaid. But some of Lamont’s fellow Democrats in the General Assembly, along with union leaders, said the cuts make little sense with a projected surplus that quadruples the estimated spending problem. They also predicted the administration’s actions would intensify pressure to reform state budget controls that have triggered aggressive savings efforts since 2017 to build reserves and reduce debt. “We’ve got an emerging problem,” Beckham told The Connecticut Mirror on Thursday, referring to $394.3 million in cost overruns projected less than five months into the fiscal year, which began July 1. More than half of that problem, about $220 million, is tied to Medicaid expenses that has been growing dangerously fast in recent years due to both health care inflation and surging caseloads. But Beckham said the Medicaid situation “has been exacerbated by the fact that we did not adjust the budget.” Lamont warned the legislature last February that the preliminary $26 billion plan in place for the 2024-25 fiscal year lacked adequate funds not only to cover Medicaid demands, but also to meet required contributions to various retirement benefit programs. Democrats opted not to adjust that plan, though, since there was little room under the spending cap to add funds for higher education, child care, social services and other core programs lawmakers said have been particularly struggling since the pandemic first struck Connecticut in 2020. That budget also includes a legislative directive that Lamont finds a hefty amount of efficiency savings — more than $183 million — during the fiscal year. That’s typically achieved by spreading that burden among dozens of state agencies, holding back a portion of each of their departmental budgets. The administration already has hit that target, but given the huge amount of projected cost overruns, Beckham said it’s essential to find more. “It’s our duty,” he said, adding that if some spending areas go beyond what lawmakers approved, the Executive Branch must find savings elsewhere. “It’s just a basic principle of our state, or our law.” Beckham sent a memo to all agencies this week warning them that new hiring will be approved only in “the most critical circumstances.” The budget director added that agencies should seek to curb “all areas of spending, including contractual services and purchased commodities.” And while the Lamont administration said back in July it would meet its efficiency savings target without trimming higher education — given its fiscal challenges — Beckham said Thursday that public colleges and universities no longer could be spared. That means the University of Connecticut, its Farmington-based health center, the state’s four regional universities, its community colleges, and the online Charter Oak State College were told this week they will lose $8 million, collectively. Beckham said that’s equal to just 1% of their state block grants this fiscal year. But higher education also got some other bad news this week.  The General Assembly and Lamont have avoided many tough budget-cutting decisions since 2021 when Congress awarded Connecticut more than $2.8 billion in emergency pandemic grants through the American Rescue Plan Act. These so-called ARPA dollars can be spent outside of normal budget constraints, such as the spending cap that tries to keep most budget growth in line with household income and inflation. Lawmakers assigned nearly the last of those emergency dollars, about $370 million, last spring to higher education and other core programs, but not to cover all the other budget holes in Medicaid and retirement benefits. A final assessment of unused ARPA dollars also was set to be completed by mid-November and legislators said the first $40 million identified also would be sent to higher education. But Beckham announced this week that this tally only uncovered $22.7 million, which would be divided equally between UConn and the Connecticut State College and University system. CSCU Vice Chancellor Adam Joseph observed that the system already has mitigated a more than $100 million shortfall in its budget, but nonetheless said, “We are committed to working with state leaders to ensure that the Connecticut State College and University System has predictable funding and the financial resources it needs to benefit our students.”  UConn issued a brief written statement saying only it is grateful for any additional ARPA funds “which will help us continue to invest in the success of our students and research enterprise.” But leaders of the legislature’s Appropriations Committee said the belt-tightening is concerning, given that lawmakers already set up an enormous financial safety net to cover budget problems. The General Fund, which covers the bulk of operating costs, had a built-in surplus of $300 million. That cushion, combined with better-than-expected revenues, including income tax receipts tied to paycheck withholding, have kept the General Fund about $180 million in the black, even with the cost overruns in Medicaid and retirement benefits. But that’s just a tiny portion of the state’s fiscal cushion. Legislators set up a controversial program in 2017 in which they bar themselves from spending a portion of quarterly income and business tax receipts. It particularly targets revenues tied to capital gains and other investment earnings that, historically, fluctuate significantly from year to year. This “volatility adjustment” will strip another $1.4 billion from the state budget — an amount representing more than 6% of the General Fund. That $1.4 billion, will be held aside until the end of the fiscal year. It then would cover any deficit — if any arose larger than the current General Fund operating surplus of about $180 million. And if somehow that isn’t enough, Connecticut also holds a record-setting $4.1 billion in its ultimate safety net, the emergency budget reserve, commonly known as the rainy day fund. The state hasn’t had to tap its reserves since 2017. Over the same period, it has run up more than $12 billion in surpluses, dedicating that to its rainy day fund and to pay down the state’s considerable pension debt. Unfunded pension liabilities topped $37 billion entering 2024. Rep. Toni E. Walker, D-New Haven, co-chairwoman of the Appropriations Committee, noted this year’s projected surplus alone is about four times the size of estimated cost overruns. And Connecticut has more than 14 times the size of this problem covered between the surplus and the rainy day fund. “I’m just flabbergasted,” she said. “We need to expand how we look at surpluses and make sure we’re not eliminating parts of government that have value.” “We should be looking at the bigger picture,” said Sen. Cathy Osten, D-Sprague, the other co-chairwoman of the Appropriations committee.  Connecticut needs to be more strategic in evaluating its needs, “rather than try to squeeze water from a stone,” she added. Osten, Walker, House Speaker Matt Ritter, D-Hartford, and Senate President Pro Tem Martin M. Looney, D-Hartford, have said the legislature needs to re-evaluate its savings rules in the upcoming legislative session, which starts Jan. 8. Labor groups also have been calling for fiscal reforms and said Thursday that many core services need more investment. “The decision to make extraordinary cuts comes when we are facing an unruly deficit, not when we are experiencing historic state surpluses,” said Michael Bailey, director of the University of Connecticut branch of the American Association of University Professors. “Failing to fully fund our higher education system — community colleges, state universities and UConn — undermines the development of a strong workforce pipeline.” “How does it make sense to make cuts in times of great surplus?” added Travis Woodward, President of CSEA SEIU Local 2001, the union that represents state transportation engineers and planners. “We’ve experienced difficult financial times in the past. Hiring freezes and ‘efficiency’ cuts have been necessary — but these are not one of those times.” But not all are opposed to tightening the state’s purse strings in certain areas. House Minority Leader Vincent J. Candelora, R-North Branford, and Rep. Tammy Nuccio of Tolland, ranking House GOP member on the Appropriations Committee, said higher education units are plagued by a “bloated” bureaucracy and shouldn’t have received any more federal pandemic grants. “We could have helped municipalities—and local property taxpayers—manage the rising costs of special education, or even provided a measure of relief to electric ratepayers,” Candelora and Nuccio wrote in a joint statement.