While Connecticut officials still don’t know how much of a toll massive federal budget cuts ordered in July will take on programs here, time is running out to mount their first line of defense.
Legislative leaders and Gov. Ned Lamont have about one more month to decide whether to use a portion of last fiscal year’s $2.5 billion surplus to repair some of the social service programs damaged by the One Big Beautiful Bill Act.
Otherwise, nearly all those funds will be used to continue reducing the state’s hefty pension debt, and efforts to counter cuts ordered by President Donald Trump and Congress likely will wait until Connecticut’s next fiscal year begins in July 2026.
“While the full impact of the One Big Beautiful Bill is still being understood, it will undoubtedly have a devastating impact on millions of Americans, as well as our economy, all for the sole purpose of giving tax cuts to millionaires and billionaires,” Lamont spokesman Rob Blanchard said. “These are not Connecticut values.”
Trump on July 4 signed the omnibus measure, which orders more than $1 trillion in spending cuts over the next decade to help finance roughly $4.5 trillion in tax relief, aimed chiefly at high-earning households.
[RELATED: What Trump’s ‘big beautiful bill’ could mean for CT residents]
But federal agencies, hampered by the ongoing budget debate on Capitol Hill, still haven’t provided states with detailed estimates of the funding they can expect to lose.
Will CT use its massive surplus to blunt the worst federal cuts?
What Connecticut and other states do know is collectively they will forfeit about $900 billion involving Medicaid and another $190 billion in nutrition assistance between now and 2034.
Connecticut officials expect federal aid here ultimately will plunge by hundreds of millions of dollars per year.
The General Assembly planned two lines of defense last spring, one for the short-term and another for down the road. Both were tied to the huge state budget surpluses it’s forced annually since 2017 to reduce a hefty pension debt and replenish reserves.
State surpluses have averaged more than $1.8 billion annually, or about 8% of the General Fund, over the past eight years.
Lawmakers began creating a long-term safety net last spring by moving $600 million from the must-save category back into the General Fund for use in future years. Legislators and Lamont also may need to modify the spending cap before those dollars can be used, and that’s unlikely to occur before the next state budget is adopted in May.
But some reductions in federal aid are happening now, putting pressure on the state to have a safety net for the short-term as well.
Toward that end, the Democratic-controlled General Assembly last spring created an “emergency public health safeguard account,” a one-time pot of money that could be tapped to solve problems identified this fall or winter.
Anticipating the 2024-25 fiscal year would close June 30 with a $2.5 billion surplus, lawmakers planned to return in an autumn special session and transfer some of that bounty into the emergency account.
But how much?
Both Senate President Pro Tem Martin M. Looney, D-New Haven, and House Speaker Matt Ritter, D-Hartford, have said since May their caucuses believe about $500 million should be set aside, and this week added they still anticipate some amount to be transferred in a special session next month.
In some places, the federal cuts are being felt now.
Looney said a state-sponsored children’s behavioral health program — which serves thousands of kids in and around New Haven — already is facing cutbacks from Washington.
The Hispanic Health Council of Hartford announced earlier this month that federal cuts had forced closure of a nutrition assistance program that served 15,000 people per year, CT Insider reported.
The Connecticut Project, a nonprofit policy research and advocacy group, recently invited residents to identify service cutbacks in their communities tied to federal funding. More than 2,000 emails have been collected and forwarded to the General Assembly, said spokeswoman Meghan Holden.
Though “no state can afford to backfill all of the [federal] reductions,” Ritter said, Connecticut needs a “robust fund” to blunt cuts that cause the most harm to its most vulnerable residents.
That would leave plenty from last fiscal year’s surplus, Looney and Ritter added, to reduce Connecticut’s pension debt, which exceeds $35 billion and is one of the largest, per capita, in the nation. A $2 billion payment to pensions would be the second-largest since state officials began depositing surplus into pensions in 2020.
“We have a responsibility to keep paying on our pensions … and we have a responsibility to meet the crisis moment,” Holden said.
Analysis: Federal cuts could cost 8,200 health care and related jobs
At least one analysis warned Connecticut could feel the pain of broader federal budget cuts sooner than some expect.
The Commonwealth Fund, a New York-based health foundation, projected last spring that the Medicaid cuts Congress ultimately approved would trigger the loss of 8,200 health care and related jobs in 2026 alone. This, in turn, would mean state and municipal governments here could collect about $103 million less in taxes.
The fund also projected cuts to food assistance programs would eliminate another 1,200 jobs and almost $21 million in state and municipal tax revenue.
But Congress ordered about 80% of the nutrition grant cuts that the Commonwealth Fund assumed, so the latter’s projections in this area could be inflated.
Nutrition assistance is a “critical lifeline” for about 120,000 Connecticut residents 50 or older, according to a statement this week from the state chapter of the AARP. That population relies on $212 per month in aid, on average, to cover basic food needs.
The AARP also projects it will cost Connecticut $173 million extra per year to offset federal cuts to this program and maintain current benefits.
Access to health care and nutrition are “extremely important in terms of people’s ability to work effectively and productively,” said University of Connecticut economist Fred Carstensen, who agreed that health care providers, farms and other food production industries would impose painful layoffs over the next year.
Trump and Congress ordered the cuts to help finance $4.5 trillion in tax relief over the next decade. They extended 2017 income tax cuts set to expire while adding new deductions for the elderly and for overtime wages.
But analysts are divided over how much this relief will create jobs or stimulate economic growth, since most will go toward the nation’s richest households.
The Budget Lab at Yale, a nonpartisan research center, projected the new federal tax relief, coupled with the inflationary effect of Trump’s tariffs, would leave all but the 20% highest-earning households nationally with less.
The lowest 10% of earning households would see their financial resources drop 6.5% while the highest earning would gain about 1.5%.
“We’re talking about a major siphoning-off of discretionary spending power,” that should dangerously weaken Connecticut’s economy, said Donald Klepper-Smith, the state’s chief economic advisor in the late 2000s under Republican Gov. M. Jodi Rell.
Time is running out to temper initial wave of Trump cuts
But Lamont, a fiscal moderate, has been reluctant to tamper with the savings programs that his fellow Democrats want to scale back to mitigate cuts in federal assistance.
The administration was noncommittal this week when asked whether Connecticut should begin using some of last year’s surplus now to respond to federal cutbacks.
“The administration will collaborate with legislative leaders on a plan moving forward once we have clarity from Washington” on all reductions, said Lamont’s budget spokesman, Chris Collibee.
Minority Republicans in the General Assembly also have been wary of weakening savings efforts.
“We’ve got to have broader policy conversations,” House Minority Leader Vincent J. Candelora, R-North Branford, told the Connecticut Mirror earlier this summer. If lawmakers want to replace vanishing federal dollars with more state funds in one program, they should find offsetting spending reductions in others, he said.
But many Democratic lawmakers, labor unions and advocates for education, human service and municipal aid programs counter that the state is too focused on pension debt, to the detriment of its core services. And with Connecticut facing unprecedented cuts in federal aid, they say, savings efforts must be adjusted.
But Connecticut needs to decide soon how it will use the $2.5 billion left unspent from last fiscal year.
State Treasurer Erick Russell needs to inform pension analysts, who must perform periodic valuations of the program, by early November how much surplus will be deposited into retirement benefit programs.
And once surplus dollars go into Connecticut’s pension funds for state workers and municipal teachers, they cannot easily be withdrawn for other purposes.
Russell, a Democrat, said Tuesday said he believes Connecticut could use some surplus for an emergency response fund without jeopardizing the high grades it’s received from Wall Street credit rating agencies in recent years for wiping out pension debt.
But Russell did not speculate on how much surplus Connecticut could spend before Wall Street might frown, adding he would work closely both with Lamont and the legislature on any emergency response program.
“I think [an emergency fund] is consistent with us trying to position ourselves in a strong fiscal manner … and safeguarding the most vulnerable in our communities,” he said.
