CT Officials Struggle to Fund School Aid Without Tax Rebate

Connecticut lawmakers and Gov. Ned Lamont are trying to lock down a budget deal before the General Assembly adjourns on May 6, but the math keeps getting harder even after Democrats dropped Lamont’s proposed $200-per-person tax rebate to free up room.

The core agreement is real. Lamont and legislative Democrats want to send significantly more money to towns for education, expand affordable child care, and keep the state’s hospitals financially stable. But agreeing on priorities is the easy part. Finding legal room to spend the money is where the deal gets complicated.

Sources close to the budget process told CT Mirror that legislators have asked Lamont to send towns roughly $170 million in extra education grants in the next fiscal year, plus another $100 million in non-education municipal aid. For Fairfield County communities from Bridgeport to Greenwich, that kind of money matters. Bridgeport has been running its schools on fraying budgets since pandemic-era federal relief dried up. Even relatively flush districts in Fairfield and Westport are feeling the squeeze from rising health care and energy costs.

The problem is structural. Two walls stand between legislators and that spending.

First, Connecticut’s spending cap limits how fast the budget can grow, tying increases to household income growth. There’s no room under that cap for the proposed municipal aid in the next fiscal year. Legislators can legally exceed the cap, but only if Lamont declares a fiscal emergency and 60% of both the House and Senate agree to it.

Second, even clearing the cap doesn’t solve the money problem. State tax revenues aren’t projected to grow much in the coming year. And a significant chunk of potential new revenue has already disappeared.

Connecticut ties its corporate tax system to the federal tax code, as do several other states. When Congress and President Donald Trump extended federal corporate tax breaks last July, Connecticut’s business tax receipts dropped roughly $350 million below projections. That’s not a rounding error. It’s a hole that consumed whatever modest revenue growth the state expected.

“I want to make sure I keep my commitment to my towns and cities, because they’re having a hard time with education, and make sure it’s within the confines of an honestly balanced budget,” Lamont said last week.

There is one large pot of money sitting nearby, but touching it requires changing fiscal rules that Connecticut has spent years building credibility around.

A special savings program restricts how much of the state’s income and business tax revenue lawmakers can spend. That program captured $1.8 billion this fiscal year. Nonpartisan analysts said Friday it will likely exceed $1.9 billion before the fiscal year closes on June 30. Raiding those funds would give legislators the cash they need. But doing so would mean weakening the guardrails Connecticut has used to pay down its pension obligations at an aggressive pace since 2020.

That’s the tension underneath every number in this negotiation.

Connecticut’s pension debt has been one of the state’s most damaging long-term liabilities, dragging on its credit ratings and crowding out other spending for decades. Lawmakers in both parties know that slowing pension payments now to fund current operations is exactly the kind of short-term thinking that created the problem in the first place.

The deeper questions don’t stop there. Federal funding cuts under the current administration haven’t fully landed on Connecticut’s budget yet, and a recession, whenever it arrives, will hit state revenues hard. Legislators and the governor are making commitments with money that may be needed as a buffer.

For towns across Fairfield County, the stakes are immediate. Districts from Norwalk to Danbury are already deep into their budget cycles, with school boards voting on spending plans built around assumptions about what state aid will look like. A delay in the budget deal or a smaller-than-expected education grant could force mid-year cuts or property tax increases. That’s a direct hit to homeowners who can’t afford to absorb more.

The General Assembly’s May 6 adjournment date isn’t a hard wall. Lamont can call a special session if talks run long. But every day past June 30 without a budget means towns can’t finalize their own spending plans, which puts municipal finance officers in an impossible position heading into summer.

Lamont and legislative leaders are expected to hold additional budget negotiations this week, with a framework potentially emerging before the end of April.