The state House of Representatives adopted a $55.8 billion two-year budget early Tuesday that invests in child care and K-12 education, provides a $250 tax cut to working poor families and increases hospital taxes in hopes of securing more federal Medicaid grants before Washington caps that program.
The biennial plan, which the Senate is expected to debate Tuesday, increases payments to health care providers who treat the poor but offers a more modest boost than legislative leaders had pledged. Similarly, the budget includes no general increase next fiscal year for nonprofit social service agencies, though it features a $76 million cost-of-living hike in 2026-27. That delayed increase comes with an asterisk, though, since many expect Connecticut’s fiscal picture to change dramatically before then due to shrinking federal aid.
Corporations would pay an extra $213 million in taxes over the next two years combined due to changes in income reporting and other rules. And a corporate tax surcharge that was supposed to expire would be extended to 2028, raising another $128 million over the coming biennium.
The budget, which would spend $27.2 billion next fiscal year and $28.6 billion in 2026-27, would curb aggressive state spending controls. That means $1.2 billion that would have gone toward reducing pension debt over the coming biennium would be redirected into the General Fund.
The Democratic-controlled House voted 99-49, largely along party lines, to approve the budget shortly after midnight following a debate that lasted more than seven hours. Because of those changes to state budget caps, the package had to be approved by a three-fifths margin, which requires a minimum of 91 positive votes in the 151-member House.
The plan also relies on borrowing and several accounting maneuvers to ensure the plan stays under the constitutional spending cap by a narrow $1 million — 1/240th of 1% of the General Fund — in the first fiscal year and by $75 million in the second.
“While we are unable to fund everything we’d like to fund, we do invest in the things that matter to people,” said House Majority Leader Jason Rojas, D-East Hartford. “We are proceeding with a budget that values the health and well-being of families, that values the education and early childhood education, that values the needs of children with special needs, that values child care.”
But House Minority Leader Vincent J. Candelora, R-North Branford, said the plan crafted by Democratic legislative leaders and Gov. Ned Lamont’s administration subverts the spending cap — which is supposed to keep budget growth in line with household income and inflation — and other controls that have added $4 billion to reserves and reduced $8.6 billion in pension debt since 2017.
“It rises to the level of deception and promotion only second to P.T. Barnum,” Candelora said during his pre-session press conference. “This budget eviscerates all of our ‘fiscal guardrails.’”
‘The single-greatest investment in children that I have ever seen’
But increasing numbers of Democratic legislators and advocates for various programs have argued in recent years that these budget controls excessively weaken education, health care, social services and other core programs.
Those “guardrails” were last fixed in 2017 and designed to end a string of budget deficits and prevent future tax hikes after big increases were ordered in 2015, 2011 and 2009.
But they’ve gone far beyond that, capturing an average of $1.8 billion per year since 2017. Analysts project a $2.4 billion surplus, equal to 10% of the General Fund, for this fiscal year, which ends June 30.
Connecticut entered this fiscal year with more than $35 billion in unfunded pension liabilities, a burden created by more than 70 years of inadequate savings before 2011. And critics say one generation cannot pay off the pension debt created by three.
“It’s important that we all realize that change is inevitable,” said Rep. Toni E. Walker, D-New Haven, longtime co-chairwoman of the Appropriations Committee. State officials have used $2.8 billion in emergency federal pandemic grants, which could be spent outside normal budget rules, to support core programs since 2021. But those funds have been exhausted.
And while this dynamic has blocked legislators from bolstering many programs, the new biennial package makes “the single-greatest investment in children that I have ever seen,” Walker said.
That involves taking about $220 million from this fiscal year’s surplus and creating a new fund — also outside the traditional budget and spending cap — to fund future increases in early childhood development programs.
The new budget continues ongoing efforts to bolster the Education Cost Sharing program, the chief grant to support K-12 school districts’ operating costs. ECS payments would grow by $90 million next fiscal year. That funding would ensure no district would receive less money than it got this year, even though a legislative formula had called for 81 communities to lose aid in 2025-26.
Legislators from both parties ordered an extra $40 million in special education grants to local districts earlier this winter to mitigate a funding crisis in that program.
The new budget continues that $40 million hike and adds another $30 million for special education in each of the next two fiscal years.
“This budget shows that we’re delivering real impactful change where it counts,” said Rep. Anthony Nolan, D-New London.
No child tax credit for middle class; poor families get $250 relief
Democratic legislators acknowledged in April that they likely would not approve the full $600-per-child income tax cut many lawmakers endorsed for low- and middle-income households. Analysts estimate that would cost the state more than $300 million per year.
But as recently as two weeks ago, leaders still hoped to provide hundreds of thousands of income-eligible households with income tax relief equal to $150 per child.
That proposal, which would have cost about $80 million per year, also was deemed too expensive this past week, especially given the potential for eroding aid from Washington.
Democratic lawmakers settled on a $250 increase in an existing income tax credit for Connecticut’s working poor — the Earned Income Tax Credit — but only for those filers that have children or other dependents.
House Speaker Matt Ritter, D-Hartford, said Saturday the payment likely would be $200 total for eligible households, regardless of how many dependents they would have. But leaders later adjusted that relief to $250, a benefit that will cost the state $35.5 million per year.
Connecticut has about 195,000 households that receive the state’s Earned Income Tax Credit, a program to help the working poor cover basic needs and increase savings. The state credit is worth 41.5% of the federal EITC’s value, meaning it adds an average of $1,061 to a qualifying household’s Connecticut income tax refund, according to nonpartisan analysts.
Most EITC-eligible households have children and earn between $50,000 and $63,000 per year.
State Rep. Kate Farrar, D-West Hartford, one of the legislature’s most vocal advocates for the broader child tax credit, nonetheless praised the $250 tax relief for working poor families as a step forward.
“There is immediate relief for many people in our towns who are most vulnerable … to pay for the food, to pay for the housing, to pay for that needed health care,” she said
Requests for health care, social services scaled back
The budget also increases the Medicaid rates paid to doctors and other providers who treat Connecticut’s poor. But the plan is much smaller than legislative leaders proposed shortly after the 2025 session began in January.
The budget allocates $15 million to boost rates for most providers next fiscal year. The extra funding would grow to $45 million in 2026-27.
Connecticut hasn’t comprehensively adjusted its provider rates since 2007, a problem that critics say has left many poor adults and children on HUSKY — the state’s Medicaid-funded insurance program — unable to find physicians willing to treat them.
Leaders initially proposed spending an extra $300 million in payments to providers by 2028-29, starting with a $75 million jump next fiscal year.
The hundreds of community-based nonprofits that deliver the bulk of state-sponsored services to people with developmental disabilities or facing mental health or addiction issues also had to settle for less.
They sought $264 million extra in the new budget. The industry insists it misses out on hundreds of millions annually because state payments haven’t kept pace with inflation for decades.
Legislators didn’t order any general rate hike for nonprofits in 2025-26, but they are slated to get $76 million more in the second year of the plan.
The biennial package also includes $34 million in the first year and $66 million in the second year for nonprofits that run group homes for residents with developmental disabilities.
But the funds for those nonprofits must be used to increase caregivers’ wages.
The state’s largest health care workers’ union agreed last month to suspend planned strikes at more than 190 group homes and 51 nursing homes after Lamont pledged to boost funding for caregivers in these two service areas.
Lawmakers also included an extra $30 million in the second year of the new budget specifically to bolster nonprofits serving clients with mental health and addiction issues or providing counseling to formerly incarcerated people reentering society.
“The budget is not everything we requested, but in the context of this year’s discussions about budget restrictions, we are grateful for their choice to support programs that will improve thousands of lives and even save some,” said Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance.
Gambling on a hospital provider tax increase
Hospitals were unhappy with the new budget, arguing it makes dangerous assumptions and lacks clear details on what the state would do to the industry.
The plan asks hospitals, starting in 2026-27, to pay an extra $375 million per year in taxes.
That doesn’t necessarily have to be a bad thing for the industry. Connecticut has an unusual tax on hospitals that currently helps both sides.
It already involves collecting more than $800 million annually from hospitals and redistributing those funds back to those facilities. This back-and-forth arrangement, which most states employ, helps Connecticut qualify for hundreds of millions of dollars yearly in federal Medicaid reimbursements, which it also shares with hospitals.
Lamont proposed back in February increasing the tax by $140 million per year and redistributing those funds back to facilities, estimating it would increase federal Medicaid payments to Connecticut by $94 million. The state would be the chief beneficiary of this bounty, but hospitals also would come out $10 million ahead under the governor’s proposal.
But what if Congress caps this arrangement or reduces the amount states can receive?
State officials have been bracing for months for big cuts in Medicaid payments from Washington as the Republican-led Congress seeks to slash federal spending to save $880 billion over the next decade.
State Comptroller Sean Scanlon, whom Lamont asked to negotiate details of a provider tax hike with the Connecticut Hospital Association, said Monday that the state’s best option is to try to get more from Washington before the door is shut.
“People in our position in every state capitol in America would be fools not to have a conversation about how we might work with this,” he said.
But under the plan, that tax hike is up to $375 million. Between 2012 and 2018, under then-Gov. Dannel P. Malloy, the state reneged on what it pledged to return to hospitals, prompting an industry lawsuit. It would be settled when Lamont took office in 2019, but hospital officials remain wary.
Further complicating matters, state officials still hadn’t shared any details by Monday evening with the hospital association showing how much each facility might gain if Connecticut secures extra Medicaid funds or what would happen if the state does not.
Lamont’s budget spokesman, Chris Collibee, said “it is our intention to ensure that hospitals are no worse off than they currently are under this tax. We will be discussing plans further with them over the next year.”
But industry officials wanted hard numbers.
“We have made it very clear that we have not signed off on the tax increase contained in the budget or the comptroller’s plan to reduce payments to hospitals as drafted in the budget bill,” the hospital association wrote in a statement. “The state has provided no other estimates, runs, or numbers related to how hospital Medicaid reimbursement would change.”
Connecticut has budgetary safety nets to protect state and hospital finances if Washington caps the provider tax system.
Besides a record-setting $4.1 billion rainy day fund, Connecticut also has a savings program that’s expected to capture more than $700 million in income and business tax receipts next fiscal year and more than $650 million in 2026-27.
Reforming excessive savings programs or risking fiscal stability?
Republicans noted that Connecticut’s safety net is getting smaller quickly.
The savings program that captures income and business tax receipts had been projected to collect $1.3 billion in 2025-26 and $1.25 billion in the second year of the biennium.
Lamont, who has been reluctant to adjust the state’s budget caps, compromised with his fellow Democrats in the legislature and agreed to scale these back to bolster other programs.
The new budget also includes several maneuvers to circumvent the constitutional spending cap.
For example, majority Democrats and Lamont both planned to underfund contractually required health care benefits for retired state workers by about $230 million over the next two fiscal years. Scanlon said he hopes to mitigate that gap by negotiating savings with insurance providers, but any remaining deficit would be taken from the retiree health care trust — meaning the cost, plus interest, would be covered by future taxpayers.
Rep. Tammy Nuccio of Tolland, ranking House Republican on the Appropriations Committee, couldn’t hide her frustrations about learning a last-minute adjustment to new budget effectively raids that health care trust by another $7 million.
Rep. Joe Polletta of Watertown, the ranking House Republican on the Finance, Revenue and Bonding Committee, chastised Democrats for not working harder to curb spending, given clear signals from Washington that Congress is asking states to get by with less aid.
“Instead of looking for savings in our budget,” he said, “we’re looking for new revenue. That is not a sustainable way to run a state.”
Rep. Craig Fishbein, R-Wallingford, offered an amendment to remove funding that supports health care for undocumented residents and transfer the resources, about $58 million per year, into special education grants for cities and towns.
“It comes down to what you want to be a beacon for,” Fishbein said. “I would like to be a beacon for funding for special education for our children in this state. If you want to be a beacon for illegal alien health care, you know, then you vote down this amendment.”
Rep. Geraldo Reyes, a Waterbury Democrat, urged Fishbein to revise his language and refer to those residents as “undocumented.”
“They are human beings, just like everybody in this chamber,” Reyes said. “They do live here in Connecticut with us. They contribute a great deal to this state, to this economy.”
“This is a budget that is based on values … of being accepting, of being understanding, of seeing people who are undocumented as being worthy of respect, as being worthy of health care,” Rojas said.
The House rejected the amendment in a 99-46 vote along party lines.
Republicans also objected to business tax hikes in the plan.
Changes to the corporation tax would require companies to pay an extra $131 million next fiscal year and $81.4 million above current levels in 2026-27.
Connecticut also has placed surcharges on its corporation tax system for decades, often pushing back previously approved expiration dates. That happened again in the new budget.
A 10% surcharge set to expire was extended to 2028. This will force companies to pay $128 million over the next two years combined that they had been hoping to save.
As negotiations on this budget were wrapping up this past week, Chris DiPentima, president and CEO of the Connecticut Business and Industry Association, said “we’re just ignoring the spending cap when all is said and done and not making hard decisions” to cut spending.
Rep. Maria Horn, D-Salisbury, co-chairwoman of the finance committee, said Democrats made difficult choices, balancing the needs of residents against the limits of the budget caps and vanishing federal aid.
“We cannot do everything in this budget,” she said. “We are in a moment of constraint.”
Public colleges universities must tap reserves
One area that legislators constrained involves public colleges and universities, which will be forced to tap their reserves over the next two fiscal years to mitigate program cuts and to avoid fee increases.
The Connecticut State Colleges and Universities system, which includes community colleges, four regional universities and online Charter Oak State College, would receive $479 million next fiscal year and $485 million in 2026-27, appropriations that mirror the $479 million in traditional state funds the system received this fiscal year.
But Lamont and legislators also propped up CSCU spending this year with $140 million in emergency federal pandemic relief, which won’t be available in the coming biennium.
Still, legislators warned system administrators they likely would face a cut. The Connecticut Mirror reported in late March that the CSCU system entered this fiscal year with $611 million in reserves, an amount that represents more than half of its current operating budget.
The University of Connecticut and its Farmington-based health center had more modest reserves but still entered this fiscal year with $171 million and $297 million, respectively.
The new state budget would reduce overall aid next fiscal year by $58 million for UConn’s main campus in Storrs and its regional campuses and by $55 million for the health center. Their funding would drop in 2026-27 by another $15 million and $4 million, respectively.
Rep. Gregg Haddad, D-Mansfield, co-chairman of the legislature’s Higher Education and Employment Advancement Committee, supported the budget, but warned that inflation has been outstripping the growth in state funding for public colleges and universities for years.
UConn and the CSCU system have ordered significant tuition and fees hikes in recent years, and tapping higher education reserves, he said, isn’t a long-term solution.
“We’re shifting the burden of funding our public institutions to students,” Haddad said, adding that leaves them with “greater debt, less opportunity and more risk. We need to do better.”
This story was originally published by the Connecticut Mirror.
