The Lamont administration has dampened expectations for increased funding for education, social services, child care, and other core programs in Connecticut’s upcoming budget, due to rising costs in areas such as Medicaid, debt payments, and other fixed expenses.
A budget report released Wednesday reveals that while revenue is expected to grow, it will not be enough to cover the escalating fixed costs, which include public sector pension contributions, healthcare programs for low-income residents, and payments to bondholders.
The state’s aggressive savings program, which has limited the legislature’s ability to spend billions of dollars in recent years, will continue to grow, with almost $1.3 billion in tax receipts to be captured in each of the next two years.
This program, known as the volatility adjustment, aims to manage unpredictable income and business tax receipts, particularly from capital gains and dividends.
Critics, however, argue that this program restricts spending and prevents the state from addressing immediate needs, such as funding for public education, nonprofit social service agencies, and child care.
The state also faces pressure from progressive policy groups and lawmakers who are advocating for new tax credits for low- and middle-income families, which could cost the state an estimated $300 million annually.
Despite these priorities, fiscal analysts predict that the combination of fixed costs and mandatory savings will consume most, if not all, of the projected revenue growth in the next two fiscal years.
Republican leaders have resisted calls to scale back the savings program, arguing that it has protected the state from financial instability. Meanwhile, some Democratic leaders contend that a balance can be struck between maintaining fiscal discipline and investing in vital public services.
However, the state’s ongoing pension debt and the potential for future recessions continue to complicate the budget landscape, making it a challenging year for lawmakers as they prepare for the 2025-26 budget cycle.