Shocked when Gov. Dannel P. Malloy slashed $91 million from municipalities five months into the budget cycle, the 2018 legislature drew a line in the sand, barring future midyear cuts to local aid.
But some legislators now are worried that line has been erased.
Because while Gov. Ned Lamont’s administration has said twice it doesn’t anticipate reducing any local grants in the fiscal year that begins July 1, it also says it could, if necessary.
And Lamont’s fellow Democrats in the legislature’s majority have left the administration with hundreds of millions of dollars’ worth of fiscal problems to solve over the next 12 months.
“I can’t imagine any circumstances under which I would recommend that,” Office of Policy and Management Secretary Jeffrey Beckham, Lamont’s budget director, told reporters on May 9, referring to the prospect of cutting Education Cost Sharing grants — Connecticut’s largest subsidy to local school districts — once the 2024-25 state budget was underway.
Commenting one day after the 2024 General Assembly session adjourned, Beckham was addressing fears expressed by Senate and House Republicans that Lamont had received carte blanche to tamper with one of lawmakers’ highest funding priorities.
Specifically, the concern was that the governor had been empowered to reduce approved levels of municipal aid after the fiscal year begins on July 1.
To stay in balance, the $26 billion state budget for 2024-25 relies on the administration finding $178 million in savings from various efficiencies, including $129 million to come from staffing costs.
Such savings efforts are common, but the 2024-25 targets were controversial. First, the new target is almost $50 million larger than the one Lamont had to meet this year. Second, the governor already was wary of the overall spending levels his fellow Democrats in the legislature wanted for education, social services and other core programs.
The spending cap technically didn’t allow for any more expenditures next fiscal year beyond the $26 billion bottom line Lamont and lawmakers previously had agreed upon. Progressives wanted to circumvent that and spend more on core programs while scaling back savings efforts that build budget reserves and aggressively reduce pension debt.
But Lamont and other fiscal moderates objected, and officials compromised. Savings programs would be unchanged, but Connecticut would dedicate its remaining $370 million in federal pandemic relief — which can be used outside of the spending cap — to bolster core programs. Officials also only partially addressed shortfalls in Medicaid and other fixed costs in the next budget.
A final condition of this deal for Lamont was that legislators would broaden his powers to make cuts and otherwise control funds once the fiscal year was underway.
One way that was done was by allowing the administration to find $129 million savings from “Executive Branch expenditures,” rather than just from staffing costs, according to the bill.
But spending overseen by the Executive Branch, including municipal grants, comprises most of the budget. Just 4% of the General Fund is dedicated to the Legislative and Judicial branch expenditures combined.
Towns lost $90M to midyear cuts in 2017-18
Legislators recognized the complications behind that six years ago. Smarting from Malloy’s decision to cut town aid by $91 million — including $42 million in ECS — in November 2017, they barred governors from cutting municipal aid midyear to achieve future savings mandates.
But while the 2024 measure expanding Lamont’s budget authority makes no reference to the 2018 safeguards, Republican leaders in the Senate and House questioned whether Democrats were putting local aid at risk through a hastily crafted provision to appease the administration.
“We potentially, by voting for this, could be jeopardizing our towns’ ECS funding,” Senate Minority Leader Stephen Harding, R-Brookfield, said last month during the budget debate.
When asked this week how the administration interprets the question, Chris Collibee, Lamont’s budget spokesman, said legislators did give the governor authority to trim town aid to meet savings targets.
“The additional authority provides another tool to ensure that the budget remains honestly balanced without unduly limiting the ability to hire critical positions,” Collibee said.
Collibee also emphasized Beckham’s May 9 prediction, saying “We do not intend to reduce municipal aid, including ECS.”
House Speaker Matt Ritter, D-Hartford, and Senate President Pro Tem Martin M. Looney, D-New Haven, both said they don’t agree with the Lamont administration’s interpretation of the law, insisting legislators never even put town aid on the chopping block.
“I will be blunt. If they cut $1 of municipal aid, we will be in special session” to restore it, Ritter said.
“I think that statute adopted in 2018 is clear: It was a general statute, having effect until repealed or amended,” Looney said, adding that this year’s measure clearly did not repeal or amend the protections for town aid.
But House Minority Leader Vincent J. Candelora of North Branford, who — like Harding and most other Republicans voted against the bill that expanded Lamont’s power — said no one expected Malloy to cut education aid to meet his savings target seven years ago, but he did.
The latest confusion could have been avoided had Democratic legislators properly adjusted the budget within existing rules, Candelora said.
“It was a very disappointing process, in that the Democrats are willing to gamble and shirk their responsibility by placing all budgetary authority into the lap of the governor’s office,” he added.
Sen. Eric Berthel of Watertown, ranking Senate Republican on the Appropriations Committee, said “I’d like to think that there’s a gentleman’s agreement” with Lamont not to touch municipal aid, but agreed with Candelora that the Democrats’ approach was flawed.
“It lacks transparency. It’s definitely sloppy,” Berthel said, adding that “one of the most important things the government pays for is public school education.”
Lawmakers left big budget challenges for Lamont
But Lamont does need to make cuts somewhere, because legislators left a lot of questions about state finances unanswered.
The Department of Social Services will get an extra $97 million next fiscal year to fund Medicaid programs but overspent its budget this year by $165 million.
The administration warned legislators that pensions and other retirement programs needed another $156 million to meet mandatory contribution levels in 2024-25. Lawmakers transferred $110 million from this fiscal year’s surplus to partially close that gap next year, but Lamont will have to transfer resources from other areas to cover the rest.
And while Connecticut has a record-setting $3.3 billion in its rainy day fund — an amount expected to near $4 billion once a portion of the 2023-24 budget surplus is applied — Lamont wants to avoid dipping into that reserve next fiscal year because an ever bigger problem looms just down the road.
Overall state finances in 2024-25 have been propped up with roughly $700 million from temporary sources. And Lamont and legislators must begin deciding how to address that gap next February when they start work on a biennial budget to cover the 2025-26 and 2026-27 fiscal years.
Towns, school districts have no fiscal margin for error
But advocates for municipalities and local school districts say their budgets are strained right now and can’t absorb any possible cut in state aid.
“Any midterm cuts in municipal aid would wreak havoc at this point,” said Betsy Gara, executive director of the Connecticut Council of Small Towns, who added most municipalities already have approved their budgets for the upcoming fiscal year.
The nearly $3 billion in American Rescue Plan Act money that Congress sent Connecticut’s state government to heal from the coronavirus pandemic is nearly exhausted.
But the executive director of the Connecticut Association of Public School Superintendents, Fran Rabinowitz, said local districts also are nearly out of direct ARPA funding. Many districts, particularly in poor urban centers, were in tough financial straits even before COVID struck Connecticut four years ago.
Most districts were forced to use temporary federal funds to cover recurring operating costs and already are facing a financial shock next fiscal year as those dollars are exhausted, said Rabinowitz, a former superintendent in Hamden and Bridgeport.
Programs to assist children struggling academically or with mental health issues already have been cut in many communities, she said, while class sizes have gotten larger.
There is an estimated $79 million gap between state aid for special education and the costs local districts are facing this fiscal year, Rabinowitz said, adding the differential is expected to reach $90 million in 2024-25.
“We need to get personal here,” she added. “We need to understand there are faces behind those cuts. … I don’t know a district that is in wonderful financial shape right now.”
Lisa Hammersley, executive director of the School and State Finance Project, echoed Rabinowitz’s concerns.
“This session, the General Assembly reaffirmed its bipartisan commitment to historic education funding reform and one of the largest investments in K-12 education in state history,” Hammersley said, referring to a $150 million total increase spread among: ECS; charter, magnet, and vocational-agriculture schools; and other diversity efforts. “As school districts across the state have been forced this budget season to make devastating cuts impacting dedicated educators and essential programs and services for students, it is critical communities receive every dollar committed to K-12 education and that this administration keeps its promises to students, families, and taxpayers.”
Lamont also will be under pressure, though, to spare other programs from midyear cuts as he tries to hit his mandated savings target and balance the next budget.
Public colleges and universities received a large share of the federal pandemic grants legislators allocated last month. The community colleges, regional universities and the University of Connecticut all have already boosted tuition and fees and imposed programmatic cuts.
Higher education officials insist they need all the temporary funds they are getting in 2024-25. They also say they’re using those temporary federal funds to cover recurring operating costs, and those dollars will need to be replaced with state funds after the next fiscal year.
The private, nonprofit agencies that deliver the bulk of state-sponsored social services to clients with disabilities or struggling with mental illness are making the same argument.
State officials dedicated $50 million in temporary pandemic grants for nonprofits in 2024-25, but the CT Community Nonprofit Alliance estimated entering this year that the industry loses $480 million annually because state payments haven’t kept pace with inflation since 2007.
“A cut to already financially strapped community providers would be a disaster for thousands of people who depend on services,” said Alliance President and CEO Gian-Carl Casa. “Many providers already have waiting lists that would only get longer, and other services could be eliminated.”