Gov. Ned Lamont and the General Assembly either eviscerated the budget caps that have generated unprecedented surpluses or barely adjusted them, leaving too little for education, human services and municipal aid.
It depends on who’s talking.
But while the reality lies somewhere in the middle, most officials agree on one thing: the discussion on Connecticut’s savings habits has just begun.
With Congress expected to slash federal aid soon, and with the latest state budget employing stopgap measures to comply with caps, that debate likely will resume soon.
“We created those [fiscal] guardrails, and they’ve worked,” said state Comptroller Sean Scanlon, who served in the 2017 legislature that ended a nine-month debate by creating a bipartisan package of fiscal controls to end a string of deficits and tax hikes. “But they were created during a crisis, when people were tired and frustrated.”
That’s a nice way of saying there wasn’t enough time to consider long-range impacts.
Connecticut has stayed deep in the black since then, adding $4 billion to reserves and using another $8.6 billion in surplus to reduce pension debt.
But over the same eight years, Connecticut has slipped into a new crisis, one of affordability that restricts access to health and child care, housing and other services, said Scanlon, a moderate Democrat from Guilford.
Despite an income tax rate cut in 2023 and expanded relief for the working poor, the state’s own fairness studies show Connecticut’s low- and middle-income households face an effective combined state and municipal tax burden that significantly exceeds that of the wealthy — and the gap is worsening.
Progressives say Connecticut has over-corrected for past fiscal mistakes, saving excessively and strangling core programs, even in times of high inflation or shrinking federal aid.
Conservatives counter the state’s debt is still too high and that any deviation from savings practices is a road to fiscal chaos.
Scanlon says state officials can find a way to balance both concerns, but it may be particularly tricky over the next few years. That’s because legislators pledged in legal covenants with bond holders not to alter the state’s caps dramatically before July 1, 2028.
“We have to have a long-term conversation adaptive to the moment that we’re now in,” Scanlon said.
New CT budget has critics from across the political spectrum
But not everyone sees the current “moment” the same way.
For the political left, the $55.8 billion two-year budget lawmakers adopted just before the 2025 session closed June 4 offered modest new investments, at best, in long-neglected core services. And that’s hard to fathom, they say, considering the state will wrap this fiscal year with the second-largest surplus in its history — $2 billion plus — and analysts project hefty financial cushions through 2028.
Legislative leaders pledged a $75 million increase in Medicaid rates starting July 1 for doctors who treat the poor then peeled back 80% of that promised growth in the adopted budget. The payment schedule hasn’t been adjusted comprehensively for almost two decades, leaving many insured patients unable to find care.
Municipal aid and funding for nonprofit social services grew, but towns and nonprofits both lose hundreds of millions annually because state payments haven’t matched inflation for decades.
Hopes for a new $600-per-child state income tax credit aimed at hundreds of thousands of households eventually became a flat $250 payment — and only to families making about $67,000 per year or less. It would distribute about 1/8th of the projected $300 million cost for a full child tax credit.
But with state officials expecting to lose hundreds of millions of dollars in aid from Washington, and with Lamont blocking progressives from increasing state taxes on the wealthy as a safeguard, Connecticut officials were wary to dole out much tax relief.
“The governor chose to protect the interests of Connecticut’s wealthiest communities — including his own — and made only modest adjustments to the fiscal roadblocks at a time when bold, urgent action was needed,” said Norma Martinez HoSang, director of Connecticut For All, a coalition of 60 faith, labor and civic organizations.
The single-largest investment tied to the new budget was a $220 million endowment created to expand child care services between now and the early 2030s.
But to make that happen, Lamont and his fellow Democrats in the legislature’s majority launched the fund outside the formal budget and therefore outside the spending cap — an accounting gimmick decried by conservatives.
Reluctant to openly exceed the cap, officials also moved some municipal aid outside the budget via borrowing and underfunding guaranteed worker health care benefits, creating a built-in account shortfall before the new fiscal year even begins
“Tampering with the guardrails means they’re not really guardrails — they’re really just ‘guard-suggestions,’” said Carol Platt Liebau, president of the conservative Yankee Institute for Public Policy. “Every time they’re loosened, it becomes easier for politicians to weaken them again, and the special interests have already signaled they can’t wait for a repeat performance.”
Lamont: ‘I’m proud of where we are’
Republican legislative leaders also chastised Lamont, a fiscal moderate and professed supporter of fiscal controls, for circumventing cap limits.
But the governor invited GOP leaders to brush up on history.
“The only people that broke the spending cap were Republican governors, about seven different times,” Lamont said, referring to fiscal emergencies declared between the late 1990s and 2007 by then-Govs. John G. Rowland and M. Jodi Rell.
Lamont didn’t mention that those emergencies, which allowed spending to exceed the cap, were endorsed by Democratic-controlled legislatures.
Lamont insists Connecticut’s budget controls remain strong but conceded that convincing Democratic lawmakers to adhere to them wasn’t easy.
“I did find that negotiating how much you increase spending and investments is just as tricky with this legislature as it is negotiating cuts, which was the norm about 10 years ago,” he said, rejecting some Democrats’ assertions that the spending cap — which ties budget growth to household income and inflation — can function like “a straitjacket.”
This cap “works on the basic premise that your spending can’t go up faster than your income,” said Lamont.
But the system isn’t as simple as the governor suggests.
Traditionally, a few large segments of the state budget grow far faster than household income or inflation, gobbling up all allowable spending growth and leaving other programs to stand pat or lose funding.
For example, while the capped portion of the budget grew just 7% between 2015 and 2019, required contributions to pensions for state employees and teachers combined increased 36%.
Medicaid costs have jumped 46% over the last four years, but the capped portion of the budget has grown just 30%.
Still, Lamont says he tries to govern from the center. Spending for human services, K-12 education and municipal aid has grown — albeit not by as much as Democrats want — and Connecticut will again dedicate much of the outgoing budget’s $2 billion-plus surplus toward reducing pension debt.
“That’s what we’ve done in this budget, and I’m proud of where we are,” he said.
GOP: CT’s budget is getting more secretive
Republican legislative leaders say the governor shouldn’t be too proud, because circumventing cap limits fosters secrecy, even as its risks deficits.
For decades, Connecticut has maintained hundreds of accounts outside the formal budget, most holding small sums and serving technical purposes.
But the easiest way to spend more than the cap allows is to create more off-budget funds.
The governor can openly exceed the cap by declaring a fiscal emergency in writing and securing a 60% vote of approval from lawmakers, which all but guarantees some public criticism.
Launching an off-budget fund takes a simple majority vote, and officials still can claim that cap limits — which don’t extend beyond the formal budget — haven’t been broken.
“At least provide people with honesty and transparency,” said Senate Minority Leader Stephen Harding of Brookfield, who noted that off-budget accounts generally don’t receive much attention from state analysts or the news media.
“I think [the budget caps] have been disrespected,” said House Minority Leader Vincent J. Candelora of North Branford, who fears rank-and-file lawmakers see them as nothing more than legal orange cones to drive around before the budget can be increased. “I think everyone entering the legislature should probably have to take a quiz on how these budget controls work.”
Progressives: Spending controls are as constrictive as ever
But progressives counter that many officials also pay little attention to the damage being done to core programs in the budget.
For example, Lamont often touts the high marks Wall Street credit rating agencies give Connecticut’s budget controls.
But progressives note those marks don’t consider how the state treats nursing home residents, students with special needs or families struggling to afford child care. Wall Street wants to know if taxes are stable, budgets are balanced — and if the state will pay its debts to bondholders.
The governor praised new investments in education, which include $95 million more in general aid to K-12 schools next fiscal year and an extra $30 million for special education.
But the Connecticut Conference of Municipalities says communities effectively lose $400 million annually because state aid hasn’t matched inflation for a decade.
New Haven Mayor Justin Elicker last week chastised Lamont, “whose obsession with the state’s ‘fiscal guardrails’ and belief that urban school districts don’t need additional funding is causing real harm to our students in New Haven and students across the state.”
Lamont administration officials note the governor agreed this spring to scale back a second cap, one that forces legislators to save a portion of income and business taxes on grounds they are too volatile, or fluctuate too wildly from year to year.
The governor agreed to reduce the “volatility adjustment,” which has captured an average of $1.5 billion annually since 2017, by $600 million.
But lawmakers still won’t find it easy to do anything other than save that money, because the new budget falls just $900,000 under the spending cap starting July 1.
In other words, the $600 million goes back into the budget, but lawmakers can’t spend more than $900,000 of it without bumping into the cap.
Sen. Gary Winfield, D-New Haven, compared the system of fiscal controls to a household that increases its “surplus” or “savings” by spending too little on nutrition, health care and education.
“It’s not smart, and it’s not safe, he said, adding, “I think we’re at the beginning of this conversation,” about reforming budget caps.
‘Guardrails’ debate could begin this fall
House Speaker Matt Ritter, D-Hartford, said the balance between spending and paying off Connecticut’s considerable debts — the state carried almost $80 billion in unfunded obligations and bonded debt entering this year — will remain a “major topic” for some time.
Both he and Scanlon suggested legislators might form a panel of interested parties and stakeholders to offer advice.
But Ritter rejected arguments from those who say the budget controls have been nullified or who insist they’ve blocked any significant new investments in key programs.
“I don’t have the luxury of being as rigid as people who want to write op-eds can be,” he said, adding “the fact that 100 people in our [House Democratic] caucus voted for it showed there was enough give on the governor’s part.”
Senate President Pro Tem Martin M. Looney, D-New Haven, also said savings efforts were not gutted but added he believes legislators need to plan their next step soon. If Congress significantly cuts funding for Medicaid, certain K-12 education programs, and other services later this summer or fall, many will look to state government to at least mitigate that pain.
And that will necessitate more spending.
“The world has changed since 2017,” Looney added, “and we need to have more flexibility.”
