CT budget deal could hinge on education funding

The General Assembly must overcome unprecedented challenges to adopt a new budget before its session ends June 4.

But the biggest hurdle legislators and Gov. Ned Lamont need to clear involves local schools.

Aggressive budget caps are leaving education and other core programs hundreds of millions shy of what majority Democrats say is necessary to meet current needs, and officials fear larger cuts in federal aid are coming this summer as Congress wraps an unprecedented effort to slash aid to states.

Unless officials can protect rural poor communities facing cuts in basic K-12 grants, boost aid to long-neglected urban centers and continue to fix a growing crisis in special education, the prospects of a budget deal are murky at best.

Can CT continue to shield all districts from education aid cuts?

“If we [won’t] spend less than $10 million [next year] for 81 communities,” said Sen. Cathy Osten, D-Sprague, “that’s saying those communities don’t count.”

Osten, who co-chairs the Appropriations Committee, is battling to ensure no district receives less Education Cost Sharing [ECS] grant funding than it currently receives.

A $2.4 billion program that provides the bulk of state aid to elementary and secondary districts, ECS would grow by $85 million next fiscal year under a revised formula lawmakers adopted eight years ago.

Based on that formula, almost half of Connecticut’s cities and towns would lose funding next fiscal year while many others simply would simply break even.

But that system, which is based on wealth, student enrollment, special needs, and past local spending, has a big flaw. Lawmakers haven’t adjusted the foundation payment of $11,525 per student for inflation in more than a decade.

And officials say ECS provides hundreds of millions of dollars per year less than it should. The Connecticut Conference of Municipalities estimates cities and towns lose more than $400 million annually because all statutory state aid hasn’t kept pace with inflation. ECS represents two-thirds of all statutory grants.

Sixteen of those losers under the formula next fiscal year, Osten noted, are “distressed municipalities,” a classification the state assigns to cities and towns facing highest levels of fiscal and economic jeopardy. 

Those distressed municipalities generally fall into three categories: Connecticut’s largest cities, such as Bridgeport, Hartford and New Haven; smaller urban communities such as New London, Windham and New Britain; and rural poor towns such as Putnam, Griswold, and Sprague.

Osten represents 10 New London County communities, nine of which are slated to lose funds.

The Sprague lawmaker says most of eastern Connecticut falls into the rural poor category, marked by high unemployment, public assistance caseloads and local property tax rates.

And while many have small populations, they are midsized to large geographically. That means even if their schools lose some students, they can’t easily cut costs.

For example, a 10-pupil drop in population could cost a school big grant dollars, Osten said. Yet, if those disappearing students are spread about five or six grades, or among several neighborhood schools, it might not be possible to eliminate even a single teacher.

Fran Rabinowitz, executive director of the Connecticut Association of Public School Superintendents and a former superintendent in Bridgeport and Hamden, said there’s a clear subset of losing communities in the ECS system that are losing ground financially.

“We feel very strongly that you’re not talking about the highest socioeconomic districts” in every instance in which the formula recommends a cut.

According to the School and State Finance Project, an education policy think-tank, if the ECS formula were adjusted in the next budget cycle, the number of communities deemed “over-funded” would shrink from 81 to 50.

Rabinowitz said her group feels legislators should spare districts from ECS cuts in the new budget – but also boost overall program funding to offset inflation.

Neither party wants to bring home less dollars to local schools

State legislators for many years have adhered only partially to the ECS system, often following a “hold harmless” policy that ensures no community ever is cut, regardless of what the formula suggests.

That approach also comes with complications. Connecticut has great contrasts of wealth and poverty among its cities and towns, and overfunding affluent districts holds back resources that poor schools desperately need.

“I understand the legislature’s desire to hold those towns harmless,” said Lisa Hammersley, executive director of the School and State Finance Project.

But once those inflationary adjustments have been made, Connecticut should move away from the hold harmless approach, Hammersley added.

It would cost about $9 million next fiscal year and $17 million in 2026-27 to hold all communities harmless with basic education grants.

Given the many fiscal challenges Connecticut is facing, Lamont urged legislators to move away from hold harmless now in the $55.2 billion budget he proposed in February for the next two fiscal years.

“The administration is willing to engage in conversations regarding the hold harmless provision of the ECS statute,” Chris Collibee, Lamont’s budget spokesman, said shortly after that plan was released. “But any changes must ensure the state budget complies with all constitutional and statutory budgetary requirements.”

But the Appropriations Committee recently counterproposed a budget that would require the state to legally exceed its constitutional spending cap for the first time since 2007, shield all districts from ECS cuts and add $84 million each year for special education programs.

Further complicating matters, both proposals come with problems.

• The committee included no funding next fiscal year for state employee raises. All major unions are up for raises starting July 1;
• Both proposals lack $230 million over the next two years combined to cover contractually guaranteed health benefits for retired state workers;
• And both need to shift $300 million off-budget and outside of the spending cap to fund increases for early childhood development.

There also are political complications.

Minority Republicans legislators, like the Democratic governor, said Connecticut should live with the existing budget caps. But like many Democrats, most Republicans favor holding all districts harmless in the ECS program.

House Speaker Matt Ritter, D-Hartford, said he’s leaning toward holding all towns harmless, at least for another two years.

“It’s not a ton of money in the grand scheme of things,” Ritter said, noting that even with a $40 million boost in special ed funding lawmakers approved for towns this fiscal year — and the $84 million extra the committee would add in 2025-26 and 2026-27 — local districts still face a shortage of resources in this area. “Residents [already] are getting hit hard.”

Ritter also noted that despite the rhetoric, both parties are struggling to live within the budget caps.

Republicans and Democrats voted overwhelmingly earlier this year to add $40 million to the special education grant program, despite warnings from Lamont that he already faced extreme challenges keeping the current state budget under the spending cap.

But Senate President Pro Tem Martin M. Looney, D-New Haven, said last week it’s premature to say whether Connecticut can afford to shield every K-12 district from a cut in state aid.

Looney, who represents one of the poorest districts in the state, warned his colleagues not to underestimate the losses in federal aid Connecticut may sustain over the next two fiscal years.

The Lamont administration has modeled potential cuts, based on proposals circulating before Congress, that place the annual impact between $186 million and $880 million in Medicaid alone. That doesn’t include cuts in other federal grants to states nor to anticipated reductions in aid from Washington to Connecticut cities and towns. The ultimate loss, many legislators say, could easily exceed $1 billion per year.

“We do have so many challenges on the plate this year,” said Looney.

The New Haven lawmaker favors reforming state budget caps that have generated an annual surplus of $1.8 billion over the past seven years. The current budget is on pace for a $2.36 billion cushion, which would be the second-largest in state history.

That represents 10% of the General Fund, a huge portion considering that three-quarters of the budget is tied to fixed or largely fixed costs, including contractually pledged wages, Medicaid, debt service and payments toward pensions and other retirement benefits.

But Lamont and Republicans largely have opposed Looney’s efforts to reform budget caps.

And while there are real financial challenges in Eastern Connecticut, the poverty is more severe in the state’s largest cities.

“There are a lot of variables we are looking at,” Looney said, adding that if many programs suffer because state officials can’t compromise on adjusting budget caps, Connecticut should “spend the most money where there is the most need.”

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