The budget caps that have radically constrained how Connecticut funds education, town aid and other core services for nearly a decade can’t be overhauled for two more years because of contractual pledges to bond holders. But many officials and advocates say programs being starved by those caps can’t wait that long. And with federal pandemic grants — which had supplemented state services since 2021 without violating cap rules — now exhausted, legislators and Gov. Ned Lamont have employed one fiscal gimmick after another to circumvent these limits and buy time. For example, officials have made an unprecedented investment in affordable childcare and bailed out special education out of financial crisis but needed to create accounts outside of the formal budget to do so. Lamont and lawmakers have underfunded retiree health care and Medicaid benefits, which must be provided regardless of whether sufficient funds were included in the budget. And now, nonpartisan analysts say overall state spending, at its current pace, will trigger deficit after deficit, into the next decade. At the same time, however, they also say a cap-driven savings program outside of the formal budget will capture enough to cover those yearly deficits five to 10 times over. Connecticut’s chief fiscal watchdog, Comptroller Sean Scanlon, says it’s time to end the dysfunction. The latest version of Connecticut’s budget caps “were created to end a fiscal crisis,” Scanlon said, referring to surging pension costs, a recession and a sluggish recovery that triggered three major tax hikes and several annual deficits between 2007 and the cap’s adoption in 2017. “That crisis, in my mind, is over.” Though Connecticut entered this fiscal year still owing $33.5 billion in unfunded pension liabilities — a legacy of debt left over from seven decades of improper savings prior to 2011 — it has chopped $11 billion off this problem since 2020. The state’s major revenue engine, its income tax, hasn’t been increased since 2015, and Lamont and legislators reduced rates for lower- and middle-income earners in 2023. But “there are other crises that are now at the top of mind,” Scanlon said. The state’s own tax fairness analyses show municipal and state taxes combined disproportionately burden the poor and middle class — and it’s getting worse. Congress and President Donald Trump imposed deep cuts on health care and food assistance that will get continually worse through the early 2030s. State education aid, despite increases by Lamont and lawmakers, costs districts hundreds of millions annually because it lags inflation. Affordable housing and childcare both face severe shortages. And Medicaid rates for doctors haven’t been increased substantially in broad fashion since 2007, leaving many poor patients unable to find treatment. Tackling those and whittling debt further down needs to be done “in a more holistic way, as part of a larger game plan, and not just as part of the way we’re doing it right now,” Scanlon added. “That’s why I think it’s important to get everyone in room before the 2027 session and try to be thoughtful.” A watershed debate on budget caps in 2027 House Speaker Matt Ritter, D-Hartford, also foresees a watershed political debate when the 2027 General Assembly session convenes in January. While Connecticut Democrats hope some federal cuts will be reversed if their party regains control of the U.S. House this November, its unlikely, even in that event, that all funding will be restored, Ritter said. “Just dealing with Medicaid alone is going to take us a lot of time and a lot of money,” he added. To help finance tax cuts aimed chiefly at the wealthy and reportedly worth $4.5 trillion by 2034, President Trump and Congress ordered about $1 trillion in spending reductions, chiefly to Medicaid and nutrition assistance. The federal budget for the current fiscal year wasn’t resolved until April 30, meaning states still are unpacking how much they likely will lose. But Connecticut officials expect thousands here will see their Medicaid assistance shrink or vanish entirely, unless the state absorbs hundreds of millions in added annual costs. Further complicating matters, there’s no room under the spending cap that keeps state budget growth in line with household income and inflation to expand a small program, let alone pick up Washington’s slack. To dedicate $620 million over this year and last to expand affordable childcare in Connecticut — an unprecedented amount roughly one-quarter of a year’s operating aid to schools — Lamont and the General Assembly had to wrangle those funds outside of the cap system. Democrats also slipped outside the budget in 2025 to give towns an extra $30 million to solve a crisis in special education. GOP lawmakers and other fiscal conservatives cried foul, saying it has to go through the normal budget process. “The fiscal guardrails are dead,” said Sen. Ryan Fazio of Greenwich, the GOP gubernatorial nominee and ranking Senate Republican on the Finance Committee. “Ned Lamont killed them, and we won’t have enough water to wash away the red ink.” what does this actually mean The governor and Democratic lawmakers have underbudgeted for health coverage for retired state workers for two years in a row. This leaves extra room under the spending cap for other programs when the budget is adopted, and the state still must provide the contractually guaranteed health benefits. Republicans charge Democrats deliberately underfund Medicaid accounts, which has generated average deficits in this program of $163 million for three years running. “We are now in a world of politics where you can say and do anything,” said House Minority Leader Vincent J. Candelora, R-North Branford. “It’s created a really bad situation down the road.” Analysts: CT headed for deficits by 2028 That “situation” was outlined in early May by the legislature’s nonpartisan Office of Fiscal Analysis. When lawmakers and the governor adopted a $28.1 billion state budget for the cycle that begins July 1, analysts projected it to be in balance. But they added that unless adjustments are made, it will run quickly into the red after that, generating modest annual deficits from 2027-28 through 2030-31 ranging from $114 million to $232 million. Still, that’s far from an unsolvable problem, thanks to Connecticut’s many-layered budget controls. A second cap captures a big chunk of income and business tax receipts before they even arrive in the formal budget, blocking legislators from spending them easily. And analysts say this savings program, which has grabbed an average of $1.4 billion since its creation in 2017, will continue to rake in big dollars. The projected capture will fall between $1 billion and $1.6 billion per year between now and 2030. And while those funds generally are used at the close of each budget cycle to build reserves and pay down pension debt, they also are available to cover deficits. The Yankee Institute, a conservative fiscal policy group, recently co-sponsored an analysis with the Reason Foundation that warned against redirecting those saved funds for anything other than debt-reduction efforts. “The guardrails have worked because they impose discipline and prioritize paying down long-term liabilities,” Carol Platt Liebau, president of Yankee Institute, said last month when the study was released. “Any changes should preserve these core functions; otherwise, they risk undoing the progress Connecticut has made.”   Meanwhile, Democrats say Connecticut continues to pay down debt faster than almost any other state but government also must bolster programs most in need and protect the vulnerable while Washington ignores them. Lamont, using an emergency fund created by the General Assembly, used $115 million to partially replace canceled federal tax credits that had helped low- and middle-income households buy health insurance on the state exchange. Democrats also noted that the GOP hasn’t found a way to replace vanishing federal assistance or boost local schools without circumventing the state budget caps. House Republicans, whose budget proposal would have sent big new dollars to districts, also recommended shifting hundreds of millions of dollars in payments to hospitals outside of the cap system to make their numbers work. And the Senate GOP — Fazio’s caucus — didn’t release a plan before the final budget debate began. Lamont’s campaign spokesman, Rob Blanchard, said Fazio’s criticism of the governor and Democratic majority amounts to political posturing. “Anything to distract from the massive red ink that Sen. Fazio, Republicans in Congress and President Trump are creating for middle-class families and their household budgets across Connecticut,” Blanchard said. Lamont’s fiscal spokesman, Chris Collibee, added the administration would recommend changes in future years to ensure all state budgets remain in balance. But Democrats don’t face criticism just from the right. Progressive groups say these budget caps represent a huge over-correction from the decades before 2011, when debt grew fast. The state averaged a budget surplus equal to 0.1% of the General Fund in the two decades prior to the cap’s adoption in 2017. In the nine years since, the average left unspent has shot up to 8.4%. Critics also say the huge shift toward saving would have caused more chaos had state government not received roughly $4 billion in emergency federal pandemic relief through the CARES and American Rescue Plan acts. This federal funding, which could be spent outside of state cap rules and on most programs, effectively served as fiscal anesthetic. As caps aggressively extracted state dollars from core programs, Lamont and lawmakers replaced some of those resources with federal dollars. But this year, the state expended nearly all of its remaining pandemic grants. Connecticut For All, a progressive coalition of more than 60 faith, labor and other civic groups, said the state must stop pretending it can save at this pace and not weaken programs dramatically. “Once again, the state budget included hundreds of millions in spending as a result of one-time budget gimmicks instead of making a permanent adjustment to the outdated fiscal controls,” Constanza Segovia, organizing director for Connecticut For All, said last month after the new budget was adopted. Connecticut has pledged in contracts with its bond holders, investors who support new school and transportation construction and numerous other capital projects, not to change its budget caps substantially before June 30, 2028. But Ritter said legislators won’t allow new investments in education and child care to slip, nor will it ignore those most harmed by federal health care cuts. He predicted legislators starting next January would craft a transitional plan that would meet these goals — and continue to pay down pension debt. “I think those are going to be big conversations” he said. ...read more read less