As final negotiations on the next state budget get underway, Gov. Ned Lamont and his fellow Democrats in the legislature’s majority have a big problem. Their election-year wish list of new tax relief and program investments far exceeds funds available within the official budget. But the cha llenge could get much easier in just a few weeks, provided Lamont enjoys the same fiscal good fortune he’s experienced almost every year since taking office. Two of Connecticut’s most volatile revenue sources — income tax receipts from investment earnings, and payments from hedge funds and other business partnerships — rise or fall as the stock market performs, rather than because of any state policy. Anticipated collections from those sources have grown by an average of nearly $500 million following the April 15 tax filing deadline each year since 2019. “We are not going to speculate on how the various revenue sources will perform,” Lamont’s budget spokesman, Chris Collibee, said this week. “Governor Lamont is committed to a balanced budget that invests in our future, provides meaningful financial relief for residents, including funding the Early Childhood Endowment, schools, and social service safety nets.” The markets have been unstable in 2026, reacting to the U.S.-Israeli war with Iran and President Donald Trump’s tariffs. But projected income and business tax receipts due in Connecticut this spring will stem largely from stock performance in the 2025 calendar year, and key indices showed healthy growth then. The Dow Jones Industrial Average, an index of 30 prominent companies listed on stock exchanges, grew by more than 13%, and the SP 500, which follows 500 traded companies, topped 16%. Cracking open one of CT’s big savings programs Another robust year from state income and business taxes doesn’t appear needed — at first glance — to pay for everything on Lamont and legislators’ wish lists. While the General Fund for fiscal year’s $27.2 billion budget officially is on pace for a razor-thin $6 million deficit, according to the state Comptroller Sean Scanlon, a savings program that withholds a portion of income and business tax receipts from the budget is expected to collect $1.8 billion. Connecticut has used this savings program since 2017 to build reserves and pay down its considerable pension debt. But Lamont, a fiscal moderate who has spent most of his tenure shooing lawmakers away from this savings program, wants to crack the piggy bank himself this year. The governor proposed taking $500 million to finance a $200-per-person tax rebate in late October, just days before voters will decide whether to reelect him to a third term. Meanwhile, Democratic legislative leaders said cities and towns — and their school districts in particular — badly need more state aid, for both basic operating and special education costs. “When you don’t give municipalities the support they need, when you don’t get school systems the support they need, their only way to raise revenue is to raise the property tax,” House Speaker Matt Ritter, D-Hartford, said when leaders pledged last month to bolster education aid. Democrats have suggested taking $150 million or more from this year’s savings program, or from a special reserve they created last November, to mitigate federal cuts to human service programs. Lawmakers also are seeking to make another big investment in early childhood care and education. They launched a new endowment with $300 million in surplus last June and hope to put as much as $600 million into the initiative this year. Sen. Ceci Maher, D-Wilton, co-chairwoman of the Children’s Committee, said many providers remain at risk of shutting down. And given that Connecticut already has an inadequate supply of affordable care program slots, investing in the endowment is crucial to educational and economic success, she added. “What we’re trying to do with this early childhood care endowment is built the infrastructure for the future of the Connecticut,” Maher said. The proposed rebate, municipal aid boost and child care investment combined would account for slightly more than two-thirds of the $1.8 billion in the savings program. Lamont is unlikely to support that large a diversion from the program, especially given that Connecticut’s unfunded pension obligations still top $33 billion, representing one of the largest such burdens, per capita, among all states. But if tax receipts from investment earnings and hedge fund profits leap upward by several hundred million dollars again this April, those dollars technically would be assigned to the savings program. That would make it easier, politically, for Lamont and the legislature’s Democratic majority to carve out an exception and redirect some of those funds for other purposes. But there likely still would be some opposition. Minority Republicans in the House of Representatives, who are expected to release a budget proposal next week for the upcoming fiscal year, would fight such a diversion, said House Minority Leader Vincent J. Candelora, R-North Branford. “House Republicans feel as if we’re struggling to keep the last vestiges of the [fiscal] guardrails alive,” Candelora said, referring to the savings program and other budget caps both parties enacted in 2017. “They are a shadow of what they were.” Democrats might not need to raid the savings program — outside the budget — if they had done a better job keeping the official spending plan in balance, he said. This fiscal year’s budget was designed to run more than $300 million in the black. But legislators and Lamont have budgeted insufficient funds for Medicaid and retiree health care in recent years, despite warnings from analysts. Had those problems been addressed, the latest $6 million deficit projection would be closer to a $120 million surplus. “These guys are going to realize why the caps are there in the first place,” he said. “Everybody’s going to regret the decisions that they’ve made.” ...read more read less