Connecticut Gov. Lamont's budget: A big rebate; most of the rest stays the course

Though Gov. Ned Lamont’s proposed $200-per-person election-year rebate will dominate the political conversation, most of the $28.7 billion budget he released Wednesday will simply maintain a course he and legislators have already charted.

The governor’s blueprint for the fiscal year that starts July 1 preserves modest new funding in K-12 education and some increases in health care and social services.

But the plan, which would boost spending 4.4% beyond current levels, would break new ground with universal free school breakfast and new business tax relief for non-corporations while significantly scaling back a planned tax hike on hospitals.

It also would reduce General Fund assistance for public colleges and universities and slow growth in Connecticut’s transportation program. The administration warned in November that it would curb borrowing for highway, bridge and rail projects because of stagnant fuel tax receipts. But the plan also included free and discounted bus service proposals for veterans and students.

Lamont also called on lawmakers Wednesday to reform “earmarks,” funds for smaller projects within their home districts that sometimes lack the vetting that larger initiatives receive. That call for reform stems from an ongoing probe into more than $15 million in state grants channeled over the past five years to the Blue Hills Civic Association, largely at the direction of Sen. Doug McCrory, D-Hartford.

“Unlike many other states, which are facing federal cuts or a deficit of their own, Connecticut is stepping up to protect our most vulnerable, and we are trying to make life a little less expensive for working families and the middle class, who are getting slammed by higher costs,” Lamont said Wednesday in his budget address to lawmakers.

Lamont nudges CT’s fiscal guardrails to finance big tax rebate

A fiscal moderate, Lamont has been one of the chief defenders of a controversial series of budget caps that lawmakers created in 2017 to end a string of deficits and improve savings.

But he’s now seeking to tap some of that savings to return $500 million to taxpayers next year.

Lamont’s plan would direct $200 to individuals earning less than $200,000 per year and $400 to couples making less than $400,000.

And though the rebate technically would be paid out of Connecticut’s sales tax receipts, which exceed $5 billion per year, the giveback would not force deep cuts to the state budget. The governor would replenish those lost dollars by temporarily adjusting one budget cap expected to save more than $1.2 billion next fiscal year.

Connecticut’s budget caps have generated huge surpluses averaging more than $1.8 billion per year since 2017. And while officials have used those surpluses to build reserves and reduce the state’s hefty pension debt, many of Lamont’s fellow Democrats in the legislature’s majority say those caps have pulled too many dollars from education, health care, municipal aid and other core programs.

Lawmakers from both parties also have their own ideas for big tax relief. And unlike the governor, they aren’t talking about a one-time payment.

House Republicans are pitching a major state income tax cut, worth $500 million annually, by boosting a credit that offsets a portion of a filer’s local property tax expenses from $300 to as much as $1,000. And many Democratic lawmakers and progressive groups support a $600-per-child income tax credit that would send $300 million to $400 million per year to poor and middle class families.

The Democratic governor’s message Wednesday: There’s only so much Connecticut can do at one time.

“Many of you over here want to add $500 million in tax cuts and over here $500 million in tax credits, leaving deficits in future years,” he told the General Assembly. “‘We’ll figure out how to pay for it later.’ Oh no, not again.”

House Speaker Matt Ritter, D-Hartford, offered a diplomatic response to Lamont’s warning.

“We’re glad that the conversation is about returning money to taxpayers, whether it be a credit or a rebate,” the speaker said. “What the number is, what the dollar values are, that’s a budget negotiation. But I’m glad he took the lead on it.”

But House Minority Leader Vincent J. Candelora, R-North Branford, said “this governor shouldn’t chastise anyone,” calling Lamont’s rebate “hollowing and gimmicky” and argued that people in an increasingly unaffordable Connecticut need ongoing relief.

Sen. Ryan Fazio of Greenwich, who is seeking the Republican gubernatorial nomination, said Lamont is relying on a one-time rebate to court voters but his budget is “without any long-term strategy to reduce energy costs, cut taxes or increase economic growth.”

But the tax rebate is not the only relief Lamont wants.

The administration proposed eliminating state occupational licensing fees for electricians, plumbers, sheet metal workers, HVAC technicians and educators. It also would end renewal fees for these positions and for health care staff, saving an estimated 160,000 workers a collective $15.9 million per year.

The governor also wants to expand existing research and development tax credits to various limited liability companies and other small businesses that don’t pay the corporation tax, saving them about $25 million annually.

The state would cap credits available annually under this program at $25 million, and no single company could claim more than $1 million in relief per year.

Former state Rep. Chris Davis, vice president of public policy for the Connecticut Business and Industry Association, said Lamont’s research and development tax credit proposal “is going to go a long way to help create jobs and economic growth here in the state.”

Scaling back a tax hike on hospitals

The governor also asked lawmakers Wednesday to eliminate most of a previously ordered tax hike on Connecticut’s hospitals.

The health care provider tax is a complicated levy that raises funds for the state. But it’s also a tool to leverage more Medicaid dollars from Washington, which Connecticut invests — along with its own resources — back in hospitals.

Lawmakers adopted a plan last June that asked hospitals to pay an extra $375 million annually, starting in 2026-27, with the state sending back an additional $140 million per year.

But hospital leaders balked, warning that the industry already loses money under this arrangement and saying the tax hike would push that imbalance to dangerous levels.

Hospitals sued Connecticut in 2015, arguing the provider tax was draining hundreds of millions annually from health care and violating federal Medicaid rules. The lawsuit was settled in 2019, and the state began making efforts to ease burdens placed on the industry.

Lamont now wants to reduce the new tax hike from $375 million to $100 million while preserving the earlier plan to boost payments to hospitals by $140 million annually.

“Connecticut hospitals already pay nearly a billion dollars each year in taxes while facing nearly $1.5 billion in annual losses due to Medicaid underpayment. Adding to the tax burden without meaningfully addressing this shortfall forces hospitals to make difficult choices,” Jennifer Jackson, CEO of the Connecticut Hospital Association, said Wednesday. “It threatens access to care and weakens the state’s health care safety net. When Medicaid underpayment isn’t addressed, costs shift to employers and families through higher premiums and out-of-pocket expenses. We urge state leaders to protect access, affordability and patient care — not balance the state budget on the backs of patients.”

Adding modest funds for K-12 schools, health care and social services

Connecticut lawmakers nearly a decade ago endorsed a plan to gradually increase the $2.4 billion Education Cost Sharing program, the state’s chief operating grant for K-12 school districts. And the governor’s plan maintains a $95 million increase for ECS that lawmakers began this fiscal year.

His plan also maintains increases ordered in each of the past two years for special education programs, as well as a new $10 million grant he and lawmakers had been planning for the 2026-27 fiscal year to encourage districts to find innovative new approaches to special ed.

Lamont also repeated his proposal from last year for $12 million to establish universal free breakfast in Connecticut schools.

The governor and lawmakers also agreed last June to boost long-neglected Medicaid rates for physicians and other care providers who treat the poor, though the effort was modest.

They added $15 million this fiscal year to bolster payments, and that investment was slated to climb to $45 million in 2026-27. The governor’s new proposal maintains that effort.

But that is far shy of the $300 million boost legislative leaders have said is needed to upgrade rates that previously hadn’t been adjusted since 2007.

Similarly, the community-based nonprofits that deliver most state-sponsored social services to people with disabilities and patients struggling with mental illness and addiction say they lose hundreds of millions annually under state payment schedules that haven’t kept pace with inflation for decades.

Lamont’s new budget preserves an earlier deal to boost spending in 2026-27 by about $150 million over current levels.

But Connecticut’s Working Families Party chastised Lamont Wednesday, saying his new budget proposal doesn’t invest nearly enough in core services.

“Connecticut families are still reeling from the unprecedented cuts from the federal government, and now state leaders have a ‘common sense’ choice to make,” said State Director Sarah Ganong. “Will we make the wealthiest people in Connecticut pay their fair share to help fund public schools, health care and public transit? Or will our elected leaders let nurses, teachers and all working people continue to pay more of their income in taxes than millionaires, even as they struggle to afford rent and groceries?”

Tightening spending on higher ed, slowing growth for transportation

General Fund operating support for the public colleges and universities would shrink modestly under the governor’s plan.

The administration and many legislators called for cutbacks last year amid reports that the Connecticut State Colleges and Universities system had amassed reserves exceeding $600 million, equal to roughly half its annual budget at the time.

The University of Connecticut’s main campus in Storrs and its satellite branches began last fiscal year with about $170 million in reserves, a more modest 10.2% of its operating budget. UConn’s Farmington-based health center held $297 million, which represented 18% of its $1.65 billion annual operating expense at that time.

Meanwhile, the Special Transportation Fund, which represents about 10% of the overall state budget, would grow more modestly than originally planned under Lamont’s latest proposal.

The governor would boost the STF by $114 million next fiscal year, pushing it to nearly $2.4 billion. But that’s still $12 million less in growth than he and the legislature originally endorsed in an earlier draft of 2026-27 finances approved last June.

Lamont, who tried unsuccessfully to convince legislators in 2019 and 2020 to approve electronic tolling on state highways, warned in November that Connecticut might need to curb borrowing for highway, bridge and rail repairs.

The Special Transportation Fund pays off the principal and interest on the infrastructure rebuilding program while subsidizing public transit costs and operating expenses for the departments of Transportation and Motor Vehicles.

Connecticut, which finances most of its transportation construction work by selling bonds on Wall Street, has issued $1.3 billion this fiscal year, according to the state treasurer’s office.

Lamont’s budget staff projected in November, though, that transportation bond sales would drop to $1.2 billion next fiscal year, $1.1 billion in 2027-28 and remain there through 2030.

Despite those challenges, the governor’s new budget proposes dedicating $3.5 million within the Special Transportation Fund to give students a 50% discount next fiscal year on transit buses, while veterans would ride for free.

Other elements of the governor’s new budget proposal include several investments to assist job growth, including $1.6 million for a pilot program in eastern Connecticut that splits child care expenses equally between workers, employers and the state.

The governor’s plan also includes $1.5 million to boost adult technical education and workforce development programs and $730,000 to bolster employment of workers with disabilities.

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CT Mirror reporter P.R. Lockhart contributed to this story.