The debate over whether Connecticut is paying down its debt too aggressively — at the expense of schools, health care and social services — has been dominating the headlines for more than a year.
But Gov. Ned Lamont and the General Assembly must grapple with another big X factor that could shape state finances even more dramatically in the coming months: President Donald Trump.
The returning president and the Republican-controlled Congress have been brimming with ideas to curb federal spending, and policymakers here on both sides of the aisle are wary of the toll it could take.
Despite Connecticut’s great wealth, Washington pours billions of dollars annually into the state to provide health care, repair highways and bridges, bolster local school districts and assist programs for people with disabilities.
Even as Connecticut policymakers watch those huge pots of money closely, state government and municipalities already are being weaned off the billions in emergency federal pandemic grants they’ve enjoyed since 2021.
Complicating matters further, the new federal fiscal year doesn’t start until Oct. 1, meaning there is no guarantee that Trump and Congress will have reached consensus on aid to states before Lamont and the General Assembly complete the next biennial state budget, a task expected to be done by early June.
“People don’t realize almost half of our state budget” is impacted by federal funding, said Rep. Toni E. Walker, D-New Haven, longtime co-chairwoman of the Appropriations Committee.
Though Medicaid often dominates legislators’ focus, federal aid plays a key role in supporting welfare, K-12 education, and public colleges and universities. It also supports many jobs in the state’s Labor, Public Health and Military departments, Walker noted, adding, “The numbers just keep adding up more and more.”
“We remain focused on our core work,” Lamont’s budget spokesman, Chris Collibee, said this week, noting that a “myriad” of proposals impacting aid to states have been floated on Capitol Hill since Trump was elected in early November to a second term. “And when there is something to react to, we will.”
Proposals to change Medicaid could dramatically reshape CT finances
Some Connecticut officials are fearful that one of the first things they may have to react to will be the most daunting.
Connecticut spent roughly $10.5 billion last fiscal year providing health care for elder and poor residents through Medicaid, a federal entitlement program. About $4.4 billion of that cost was borne by the state, with the remaining $6.1 billion covered by federal reimbursements.
Meanwhile, GOP proposals on Capitol Hill including scaling back the Affordable Care Act expansion of Medicaid. Trump spoke sparingly about Medicaid during the campaign but said often he wants to dramatically reduce federal spending, and Medicaid represents a nearly $900 million annual expense to Washington, D.C.
The Center on Budget and Policy Priorities, a Washington, D.C.-based policy group, recently estimated a plan from GOP congressional leaders to cut coverage for Medicaid recipients who fail to meet certain work requirements could affect 36 million enrollees nationally. If approved, it would likely trigger a corresponding drop in Medicaid funds for states.
Meanwhile, Connecticut officials have had their own challenges keeping Medicaid costs in check without having to worry about losing federal funding for it.
The state Department of Social Services, which oversees the bulk of the Medicaid program in Connecticut, faced more than $160 million in cost overruns last fiscal year and is projecting about $260 million through the first half of the current year, according to Lamont’s budget office.
The General Assembly has focused on expanding Medicaid to assist families struggling since the coronavirus pandemic began in 2020, particularly boosting coverage for undocumented children.
Legislators and the Lamont administration also are amid a two-year analysis of the Medicaid rates Connecticut pays physicians who treat the poor, something the state hasn’t adjusted in a broad-based fashion since 2008.
Medicaid “is the thing we’re all looking at,” said Sen. Matt Lesser, D-Middletown, co-chairman of the Human Services Committee. “It’s the single-greatest area of state-federal partnership.”
Despite the uncertainty from Washington, Lesser said he believes lawmakers here will continue to focus on aiding those most in need.
“I think our goal is to keep our heads down and keep focusing on strengthening the program,” he said, adding that state policymakers also will look to “cut costs where we can.”
Meanwhile, the Lamont administration is trying hard to contain burgeoning Medicaid costs, including researching a controversial return to managed care, a system the state had used prior to 2010.
In a traditional “capitated managed care” model, the state pays a set monthly fee per member to insurance companies to manage the Medicaid program, and the insurance companies pay providers. After broad criticism that this led to subpar care, Connecticut shifted after 2010 to a managed fee-for-service model, where the state pays providers directly for services delivered to Medicaid beneficiaries.
CT relies on surging federal transportation grants to ramp up projects
But Medicaid isn’t the only big pot of federal money crucial to Connecticut.
The state’s program for rebuilding its aging network of highways, bridges and rail lines got a huge shot in the arm four years ago when President Biden secured passage of a major new investment act. Funding for Connecticut’s highway and bridge projects alone was slated to jump more than 30%.
These federal grants, matched with state borrowing, provide the overwhelming bulk of resources to rebuild Connecticut’s aging transportation infrastructure.
The state Department of Transportation has been criticized by trade unions, the construction industry and other transportation advocates for not getting enough projects underway. But much of that problem stems from limitations on state borrowing imposed by governors and legislatures.
Connecticut received about $1.4 billion in federal construction funding last fiscal year, pairing it with $875 million in state borrowing. Lamont wants to push state borrowing to $1.4 billion by 2026-27.
Don Shubert, president of the Connecticut Construction Industry Association, said, “Right now, nobody can predict or make any projections” of what Trump and the Republican-controlled Congress will do when the Biden financing plan expires in October 2026. But Shubert said Connecticut, after years of moving far too slowly rebuilding its system, cannot afford any more delays.
School districts, already losing huge federal aid, can’t take another hit
Education advocates also are waiting anxiously.
In March 2020, shortly after COVID first struck Connecticut, Congress created the Elementary and Secondary School Emergency Relief Fund, commonly known as ESSER.
This has channeled roughly $1.7 billion in federal aid into Connecticut, with about 90% sent directly to local school districts, according to the state Department of Education. They also have benefitted from more than $160 million in pandemic relief from a second federal program, the American Rescue Plan Act, or ARPA, established in 2021.
But local districts, which have exhausted nearly all that temporary aid and are bracing for their first budget cycle without it, face another complication.
Because of inflation and limited local funding, school districts used that temporary funding chiefly to cover ongoing expenses, such as staff salaries, said Fran Rabinowitz, executive director of the Connecticut Association of Public School Superintendents.
Even traditional state aid, which has grown in recent years, hasn’t kept pace with rising costs. For example, districts collectively project a $90 million gap next fiscal year between the cost of serving students with special needs and available state funding for these programs.
“It’s creating [funding] gaps, significant gaps everywhere” in local education budgets, Rabinowitz added. “In the most challenged districts, it’s even more apparent.”
The squeeze only gets worse if districts face cuts not only in emergency grants but also traditional federal aid.
According to the School and State Finance project, a Connecticut-based education policy group, Washington, D.C. provides more than $2 billion annually to Connecticut school districts to support students from low-income families, those for whom English is a second language, students with disabilities, and vocational, post-secondary and adult education programs.
Joe DeLong, executive director of the Connecticut Conference of Municipalities, said his organization would watch federal aid to districts closely, but he said it’s premature to assume what might happen.
“I tend not to worry about problems that I don’t have until I have them,” he said.
Winter heating aid already shrinking due to declining federal aid
The squeeze of shrinking federal funding already is being felt in Connecticut by retirees on low, fixed incomes and other poor households when it comes to winter energy costs.
Though state government runs its own energy assistance program, it contributes almost no local funding, choosing instead to distribute federal dollars provided through the Low-Income Household Energy Assistance Program, commonly known as LIHEAP.
And while LIHEAP dollars to states rose in the first few years since COVID’s first appearance in 2020, Congress has since rolled them back closer to pre-pandemic levels. Demand, however, has continued to grow.
The maximum benefit per household peaked at $4,825 in the winter of 2021-22 and has fallen steadily to $1,350 last winter.
The state Department of Social Services estimates it will climb somewhat this winter, reaching $1,760. But Connecticut’s Low-Income Energy Advisory Board has been pushing Lamont and lawmakers for the last three years to supplement the federal LIHEAP grants with state dollars.
“We’re hoping we at least stay at minimum [federal funding] levels,” said Nora Duncan, state director of the AARP and vice chairwoman of the energy advisory board.
Duncan declined to speculate what Congress and Trump might do but noted that LIHEAP funding enjoys strong support in all states, and any further cuts likely would generate strong objections. “This is such an important issue across the country,” she added.
Lamont, a fiscally moderate Democrat, has been reluctant to spend state funds on winter heating aid, arguing it is a federal responsibility.
Minority Republicans in the General Assembly have argued that with huge state surpluses, which have averaged more than $1.7 billion since 2017, Connecticut easily could spare the tens of millions needed annually to help vulnerable residents.
“Connecticut has a history of going above and beyond what the federal government does,” said Rep. Joe Polletta of Watertown, ranking House Republican on the General Assembly’s Finance, Revenue and Bonding Committee. “I’d like to know if we can find that money.”
CT Mirror staff writer Katy Golvala contributed to this report.