Since Congress awarded Connecticut $2.8 billion in emergency pandemic relief nearly four years ago, state government has earned hundreds of millions of dollars through investments. State legislators learned about this $340 million windfall for the first time Wednesday. Gov. Ned Lamont’s budget director says the Treasurer’s Office failed to properly move the interest earnings into the General Fund — a problem corrected just a few weeks ago.  But the administration had been receiving reports on investment earnings four times annually since emergency relief from the American Rescue Plan Act [ARPA] arrived in the state’s coffers shortly after March 2021. And while legislators were scrambling last spring to find additional dollars to bolster higher education, child care, Medicaid and other social services, it remained unclear Wednesday whether the newly reported investment income could be used to help these programs before the fiscal year ends on June 30.  If not, the funds only would pad an already huge projected state budget surplus. And critics already have begun to attack Lamont and the legislature for using savings programs to amass huge windfalls at the expense of core services. “The fact that somebody found $340 million under a couch cushion, that nobody knew about, is reprehensible,” House Minority Leader Vincent J. Candelora, R-North Branford, said shortly after legislators were briefed on the issue. “I am also interested in understanding more on why this is suddenly appearing,” said Rep. Maria Horn, D-Salisbury, co-chairwoman of the Finance, Revenue and Bonding Committee.  Horn insists she isn’t assuming bad motives on the part of any state agency, but added “it was a little less transparent than I would prefer.” “Why was all of this interest income not known by the state for four years since it began accumulating?” added Sen. Ryan Fazio of Greenwich, ranking Senate Republican on the Finance committee. “Was it properly accounted for or not? These are substantial amounts of taxpayers’ dollars, and they deserve clarity.” The “found” dollars came to light Wednesday in the latest revenue projections developed jointly by the governor’s budget staff and the legislature’s nonpartisan Office of Fiscal Analysis. The fact that somebody found $340 million under a couch cushion, that nobody knew about, is reprehensible. House Minority Leader Vincent J. Candelora, R-North Branford Lawmakers had been anticipating few changes in tax receipts, federal dollars and the other major sources that fuel Connecticut’s $26 billion annual budget. And the latest report confirmed that — with one interesting exception. Connecticut makes more than $200 million annually in investment income that supports the state budget. This is driven largely by interest on the $4.1 billion emergency reserve, commonly known as the rainy day fund. But in Wednesday’s consensus report, lawmakers watched investment earnings shoot up dramatically. The Lamont administration disclosed that the $2.8 billion in ARPA dollars Connecticut has dispersed since the spring of 2021 generated $240 million in interest in its first three years, and that total should reach $340 million before this fiscal year ends. Budget analysts report available revenue to lawmakers in detailed reports three times each fiscal year: on Nov. 10, Jan. 15 and on April 30. But investment income from the ARPA funds didn’t appear on these reports over the past four years until Wednesday. ‘There appeared to have been some miscommunication’ When Connecticut initially received the pandemic grants from Washington, the funds temporarily were held in an off-budget account, which is normal procedure.  At the same time, the state immediately began investing the ARPA grants in short-term funds to provide interest revenue. Congress gave states until Jan. 1, 2025 to assign uses for all ARPA funds and until Jan. 1, 2027 to spend all of those dollars. That meant they could be used to generate considerable additional revenue before being expended. Horn noted the General Assembly acted quickly in March 2021, shortly after Congress approved the program to clarify that it — and not Lamont — would oversee expenditures of all ARPA funds awarded to state government. Legislators’ intent, she added, was that interest earnings from these pandemic grants also be available to them. Lamont’s budget spokesman, Chris Collibee, said the administration asked the treasurer’s office in the spring of 2021, shortly after the ARPA funding had been received, to assign all interest earnings to the General Fund, which represents the bulk of the state budget and covers about 90% of Connecticut’s annual operating expenses. “There appeared to have been some miscommunication,” Collibee said, and the interest earnings weren’t directed to the General Fund. That meant they also weren’t reflected in the revenue updates provided to the legislature in November, January and April of this fiscal year. “We eventually noticed” the problem, Jeffrey Beckham, Lamont’s budget director, told the Connecticut Mirror Wednesday. “It became apparent to us in the last couple of months.” Beckham’s office approached the treasurer’s office and the ARPA-related interest was assigned to the General Fund earlier this month. State Treasurer Erick Russell, who succeeded fellow Democrat Shawn Wooden as treasurer in January 2023, said Wednesday that he wouldn’t speculate on communications between his predecessor and the Lamont administration. But while Beckham said the administration wasn’t aware tens of millions of dollars in ARPA-related interest wasn’t being transferred annually into the General Fund since 2021, Russell noted the treasurer’s office does provide four reports yearly to the administration on how ARPA investments are performing. “I have a growing concern about the competency of so many of our state agencies,” Candelora added about the latest reporting mix-up. “There is a lack of accountability and focus.” Can lawmakers spend newly found windfall? There also remains one huge question surrounding these extra dollars: Can lawmakers spend them this fiscal year? Connecticut imposes a spending cap that tries to keep growth in most budget areas in line with household income and inflation. The current budget already is approaching the spending cap limit, which appears to block any use of the $340 million in ARPA-related interest dollars. But the actual ARPA grants themselves, because of their status as emergency federal relief, can be spent outside of the cap system. Does the same exemption apply to interest earnings from these emergency grants? Beckham said the funds are subject to the cap, which would mean they only would bolster an already enormous surplus forecast. Despite legislators’ concerns about core programs, the budget was projected to finish with nearly $1.6 billion left unspent, a whopping total that exceeds 7% of the General Fund. The new interest revenues push that potential surplus beyond $1.9 billion. Despite criticisms from his fellow Democrats in the legislature’s majority, Lamont has been a staunch defender of the spending cap and other fiscal controls that have helped generate consistent large annual surpluses since 2017. Connecticut has used such windfalls in recent years to dramatically reduce its huge pension debt, which topped $35 billion entering this fiscal year. Russell’s office hasn’t said yet whether it believes the ARPA-related interest earnings are subject to the cap. And Senate President Pro Tem Martin M. Looney, D-New Haven, said he believes legislators will want to explore this question closely as well. “We have to look ahead and see what the possibilities and constraints of this newfound money are,” Looney said, adding that having “knowledge of it earlier could have been helpful to us last spring.”