Lamont won’t say if he’ll ease ‘debt diet’ to make CT budget fix work

Since his first weeks on the job, Gov. Ned Lamont has urged his fellow Democrats to embrace a “debt diet” and curb borrowing where possible.

But the administration wouldn’t say this week whether it would back legislative leaders’ plans to borrow to effectively cover operating expenses in the next budget — creating a significant hole to be tackled one year from now.

“Gov. Lamont is committed to an honestly balanced budget in [fiscal year] ’25. Any adjustments that impact any level of funding must ensure the budget remains balanced,” Chris Collibee, the governor’s budget spokesman, told The Connecticut Mirror this week.

At first glance, this answer appears to close off options for Democratic legislators, who want to add $300 million to $400 million to a preliminary $26 billion budget for the next fiscal year that already exceeds the state’s spending cap by $30 million.

But borrowing happens outside of the budget. The same applies to spending federal pandemic relief grants. The majority Democrats’ latest plan to bolster the next state budget beyond what the spending cap allows centers on those two areas. It goes like this:

• Step 1: Identify projects and programs currently paid for with the last vestiges of Connecticut’s $2.8 billion American Rescue Plan Act allocation from Congress.

• Step 2: Replace those ARPA dollars with borrowed funds.

• Step 3: Reassign ARPA dollars to higher education, social services and other core programs. 

Emergency federal relief can be spent outside of the spending cap, which tries to keep most expenditure growth in line with changes in household income and inflation.

This approach effectively would circumvent the spending cap and other fiscal principles that Lamont frequently espouses.

But borrowing for ongoing expenses adds an interest cost normally reserved for capital projects.

The administration repeatedly chastised public colleges and university systems this past winter for using ARPA dollars for operating costs rather than for one-time purposes such as paying down debt. Yet this latest Democratic strategy would pump more temporary dollars into ongoing programs.

Lamont recently upgraded his estimate of ARPA dollars available for use next fiscal year from $56 million to $200 million — much closer to the $300 million minimum sought by Democratic legislators.

This week, House Speaker Matt Ritter told the CT Mirror that legislators hoped to replace $75 million in ARPA funds earmarked for municipal school HVAC-system upgrades with $75 million in borrowing.

Does Lamont’s upgraded $200 million ARPA tally reflect this proposed supplanting of pandemic grants with borrowing? Could available ARPA be expanded to $300 million or more by identifying more ARPA-funded projects and instead paying for them by borrowing the money? 

“The administration will not comment on what is or is not included [in the ARPA tally] until we have had further conversations with the General Assembly,” Collibee said.

Democrats couldn’t pull off such a swap without the governor’s cooperation, given that any bonding bill would go to Lamont’s desk for a signature. 

“I think [Lamont] will be fine,” with Democrats’ plans for the upcoming fiscal year, the speaker said earlier this week. “He may not agree with how we spend it, but I think he’ll agree [with] how we get it.”

When asked if Lamont would sign such a maneuver into law, Collibee wouldn’t say, though he acknowledged it would increase the problems state officials would have to solve next year.

“Minimizing structural holes is always a goal,” Collibee added. “Whatever is agreed to may have to be accounted for in future budgets.”

Lamont has been a vocal advocate for the spending cap and other budget controls that he and other supporters have dubbed the state’s “fiscal guardrails.” These controls have helped state government amass a record-setting $3.3 billion rainy day fund and use an extra $7.7 billion in surpluses to pay down pension debt.

But critics say these controls are forcing the state to save excessively and are dangerously shortchanging core programs. 

The University of Connecticut and the Connecticut State Colleges and Universities system both have ordered significant tuition and fee hikes for the next academic year and are planning cutbacks to close deficits. Nonprofit agencies that deliver the bulk of state-sponsored social services say they lose $480 million annually because state payments haven’t kept pace with inflation, leaving them unable to meet demand.

When the CT Mirror published a series in late January demonstrating the impact of huge new state savings policies on core programs, Lamont insisted the guardrails were working fine and that legislators had to make tough-but-necessary spending choices.

Leaders of the Republican minorities in the House and Senate said Thursday that Lamont can’t have it both ways. He can’t be the public champion of the guardrails while facilitating a legislative end-run around the system.

Republicans already are frustrated that Democrats have said they won’t address hundreds of millions of dollars in projected holes in the next state budget, involving eroding sales tax receipts, cost overruns in Medicaid and other programs, and insufficient appropriations to cover required pension fund contributions.

If Lamont helps Democrats borrow for operating expenses, even as they ignore budget holes, the GOP said, it’s a big financial mistake.

“Right now, the governor is a bit of a deer in the headlights, and I think they’re trying to cover up that [ARPA] money,” said House Minority Leader Vincent J. Candelora of North Branford, who predicted state finances will be struggling 12 months from now when ARPA funds have been exhausted. “I don’t foresee a soft landing.”

“It’s bad fiscal policy, and it’s counter to what this governor ran for reelection on two years ago,” said Senate Minority Leader Stephen Harding of Brookfield.

Staff writer Mark Pazniokas contributed to this story.

Related Links:

1. CT officials insist tax cuts will remain as pandemic relief expires
2. Lamont won’t help lawmakers leave gaps in next CT budget
3. Panel backs new CT budget with built-in shortfalls, few details