Connecticut legislators will have more room to spend under state budget caps later this year than they’ve enjoyed in more than a decade.
But it remains unclear whether that will permit enough spending to cover growing needs in health care, education, and other core programs — or to offset vanishing federal aid.
New revenue projections released Thursday from Gov. Ned Lamont’s budget staff and the legislature’s nonpartisan Office of Fiscal Analysis showed little change in projected tax receipts for this fiscal year and next.
But the consensus forecast is based on household income growth in Connecticut that has averaged 5.93% annually over the past five years. And because of that surge, state budget appropriations, with a few exceptions, can grow by that same 5.93%, which translates into an extra $1.3 billion next fiscal year, which starts July 1.
Connecticut’s primary budget cap allows growth equal to the latest five-year average increase in household income, or to the prior year’s inflation, whichever is larger. Principal and interest payments on bonded debt, spending to meet court orders and new federal mandates are cap exempt. All remaining segments of the total budget, about 80% of a plan expected to top $28.6 billion next fiscal year, must share the allowable $1.3 billion growth.
At first glance, that seems great.
Allowable budget growth has averaged about $700 million over the past five years and rarely tops $1 billion, though it is set to exceed $980 billion this fiscal year.
And the percentage growth has only topped 5% three other times since 2017.
But most years, spending cap growth isn’t sufficient to cover all inflationary cost hikes faced by state agencies and programs. And in some cases, such as state funding for nursing homes, inflationary hikes required by statute have been suspended for more than a decade.
The Connecticut Conference of Municipalities launched an ad campaign last year charging that education grants to communities, once adjusted for inflation, had declined by more than $400 million. The legislature and Lamont responded last spring by boosting education aid by more than $130 million this fiscal year.
And the community-based nonprofits that deliver the bulk of state-sponsored social services insist they lose hundreds of millions annually because state payments haven’t kept pace with inflation for more than a decade.
Rep. Toni E. Walker, D-New Haven, co-chairwoman of the legislature’s Appropriations Committee, said “we’ve got some big-ticket items” to address in the next fiscal year.
Besides providing some inflationary adjustments, legislators hope to further expand investments in education aid, affordable child care and housing while bolstering understaffed state agencies.
The budget committee’s other co-chairwoman, Sen. Cathy Osten, D-Sprague, said last year’s investments in education, though significant, weren’t sufficient to ease pressure on municipal property taxpayers, who still cover far too much of the cost of K-12 education.
“We’re far behind where we should be,” she said.
Walker and Osten also noted that Connecticut expects to lose hundreds of millions in federal aid or more next fiscal year for human services programs, and many lawmakers want to see increased state spending to mitigate painful cuts to health care, nutrition assistance and other services.
But Rep. Tammy Nuccio of Tolland, ranking House Republican on the Appropriations Committee, said majority Democrats in the General Assembly must get better about accepting cap limitations and prioritizing spending.
“I think it’s funny there’s never enough of other people’s money to spend,” she said. “That’s the sad truth.”
Nuccio added that her caucus also will be pushing to control spending to allow for a major state income tax cut that House GOP members called for in the fall. The caucus wants to deliver a much as $700 extra to middle-income households by expanding an income tax credit that offsets a portion of municipal property tax costs.
Lamont, a fiscally moderate Democrat, also has pressed his fellow Democrats to live within the spending cap.
That metric “reflects our residents’ ability to pay,” Chris Collibee, Lamont’s budget spokesman, said.
Collibee also cautioned legislators about planning for too much new spending, noting that the nearly $1.3 billion in new spending allowed by the cap “will be needed to maintain current services during the coming fiscal year.”
Revenue growth is modest after surging for more than a year
State revenues, which already have grown considerably over the past year, remained largely stable in analysts’ latest projections.
Thursday’s report estimated tax receipts and other resources for the General Fund, which covers the bulk of state budget operating expenses, would approach $24.5 billion this fiscal year, up about $100 million from their latest projection in early November. And they also upgraded revenue estimates for the next fiscal year by about $80 million.
In both cases, robust sales tax trends drove most of the growth, which nonetheless represents only a fraction of 1% of the General Fund.
“Today’s consensus revenue forecast reaffirms what we’ve been saying all along — Connecticut’s economy is resilient,” Lamont said. “Despite international and national economic uncertainty, our state continues to demonstrate strength and stability.”
The governor, who must propose his next state budget to the legislature on Feb. 4, added Thursday that “my top priority remains making Connecticut more affordable for middle-class and working-class families. We will keep investing in policies that lower costs, create good-paying jobs, and ensure that families and businesses can grow and thrive here.”
Keith M. Phaneuf is a reporter for the Connecticut Mirror. Copyright 2026 @ CT Mirror (ctmirror.org).