Today, Gov. Ned Lamont took to the legislature floor to reveal his $55.2 billion biennial budget proposals, which aim to significantly increase education and early childhood investment while addressing the issue of residential affordability. The Governor’s proposals include the creation of a universal preschool system, requiring a one time readjustment of the state’s volatility cap, as well as investments in education.
On the affordability front, Lamont announced a reworking of the state’s hospital tax, a new cap on its medical reference pricing, and efforts to lower pharmaceutical costs. In addition, Lamount announced a $50 increase in property tax credits and the ending of expensive licensing for multiple vocations.
“The last few weeks have been turbulent, and we can only guesstimate how changes in Washington will impact our budget over the next few months and few years,” said Lamont. “Our proposed budget is our best effort to stay true to our Connecticut values while continuing to focus on affordability and opportunity for all.”
The budget is estimated to spend $27 billion next fiscal year and $28.2 billion in the ‘26-27 fiscal year. These estimates represent a 4.6% jump in spending from this year’s budget, and an additional 4.6% jump from fiscal year ‘25, to fiscal year ‘26-27. Lamont justified these increases by pointing to the state’s growing economy.
“Our economic growth is still strong, second only to Maine in the region – they must’ve sold a lot of lobster last year – and our unemployment rate is the lowest it’s been in 25 years,” said Lamont. “That means as a state, we are earning more, which means our general fund will grow 4.5% to 4.8% over the next biennium – more than inflation.”
The largest new initiative unveiled in the proposals was a Universal Preschool Endowment (UPE), which would get its initial funding via $300 million in previously unallocated funds from this year’s General Fund. State officials plan to fund UPE in future years by moving 3% of the state’s revenues from its pension paydowns to the General Fund, and then using 3% of the state’s General Fund surpluses each year. Lamont estimated this will provide the UPE with $300 million per year.
“This fund will be a downpayment on making pre-K and early childhood education affordable and accessible for all of our kids,” said Lamont. “Three hundred million dollars from the fiscal ’25 surplus will seed the fund, and our budget anticipates almost $1 billion in the endowment over the next few years.”
Jeff Beckham, Secretary of the State’s Office of Policy and Management (OPM), in a presentation made earlier today, said that the UPE will aim to create 12,000 new pre-K openings and approximately 7,500 extended day pre-K openings while reducing the cost of approximately 19,000 existing openings by 2032. Beckham and Lamont both announced their intent for there to be no costs for families making up to $100,000 a year and “limited costs” to families making between $100-$150,000 a year.
The UPE will be overseen by State Treasurer Erick Russell, Office of Early Childhood Commissioner Beth Bye, and State Department of Education Commissioner Charlene Russell-Tucker. Russell will have primary discretion of the UPE’s funds, while Bye and Russell-Tucker will have the ability to expend 10% of the UPE’s funds per year, or an estimated $30 million per year, at their discretion.
“It will be managed by the Treasurer the way he manages our pension funds, as a trust fund, hoping to grow it, to maximize its value over time,” said Beckham. “There will be some ability of the OEC to build out the current system, and that’s the plan. We have to create more capacity for universal preschool. Capacity doesn’t exist yet.”
Freeing up of an additional 3% of the state’s pension paydowns marks what Lamont called a “tweak” to the state’s fiscal guardrails. Beckham explained the process by which he, Lamont, and Russell decided to make an adjustment to the state’s volatility cap threshold, or the point at which excess state revenues are captured and set aside for its Rainy Day Fund.
Beckham said that when the original volatility cap was set in 2017, it anticipated $3.1 billion in revenue. Upon evaluation, Beckham said this projection would have been exceeded in four of the previous five years had the cap been in place then.
“If you did an average of those five years, you would have started with a higher number for the volatility cap threshold,” said Beckam. “If you grow that number by the statutory formula by which the threshold grows, you get an extra $288.9 million that would be available in fiscal year ‘26, and $304.5 million available for the general fund in fiscal year ‘27.”
In order for this change to the volatility cap to be implemented, it would require a ⅗ vote in both the State House and Senate. In recent years, Lamont has been tugged in both directions regarding the state’s fiscal guardrails; several Democrats have voiced the belief that it has placed undue budgetary constraints on core state programs and services, while Republicans have insisted it remain ironclad to maintain fiscal responsibility.
Despite this “tweak,” Lamont, who has until now remained steadfast in his defense of keeping the fiscal guardrails as is, voiced his commitment to them going forward.
“I continue to be a strong believer in the spending cap, which simply restates the obvious: you can’t spend more than you earn,” said Lamont. “That said, we have earned the opportunity to rethink the volatility threshold.”
House Republican Leader Vincent Candelora (R – Durham) released a statement in opposition to this adjustment.
“By tampering with the volatility cap, he has waved the white flag on Connecticut’s hard-won fiscal guardrails, handing legislative Democrats a green light to shatter the spirit of those controls and dramatically expand government spending,” read the statement.
Lamont also announced a $500 million increase in Capital Budget funding towards the construction of new schools, citing projects in Torrington, Trumbull, Thompson and New Britain as benefactors. Additionally, he announced $160 million in state aid funding for schools. In order to increase education savings, Lamont said his proposals include “some cost-saving reforms,” such as the capping of out of district costs to private providers.
Lamont announced $40 million in funding to subsidize special education programs and the creation of $14 million in incentive grants to districts looking to create additional in-district facilities for special education. Lamont said the purpose of these $14 million in grants is to dissuade the often costly practice of sending children with special needs out of district to districts that can more adequately serve them.
“Special education is a promise we make to help our kids with special needs,” said Lamont. “I have seen and heard firsthand how the right program makes a lifelong difference for these special kids.”
Regarding higher education, Lamont addressed the need for state colleges to both reduce costs and “reimagine” its workforce preparation efforts to hone in on newly burgeoning industries, namely AI.
“UConn and CT State have excellent faculty, but our colleges must focus on the students first, and the importance of higher ed does not exempt our universities from making sure that taxpayers and students are getting the best value,” said Lamont. “Their student population is down 30%, most students don’t graduate, and costs keep escalating. The university boards and leadership should be drilling down on the mix of courses, size of lectures, and teaching load. You can’t teach innovation if you’re hesitant about innovating.”
Lamont said that the state, working in tandem with UConn and Yale, will invest over $100 million in quantum computing and AI applications to “keep our key industries ahead of the curve.” Furthermore, Lamont said his proposals would include an increase in biotech research and development tax credits from 65% to 90% and would eliminate capital stock tax to incentivize tech startups.
In regards to healthcare costs, Lamont announced capping the state’s reference pricing, the limit on how much a payer will pay for services, at 240% of Medicare for state employees. Lamont estimated this would save taxpayers $100 million in costs. In addition, Lamont proposed a reworking of the state’s controversial hospital tax, which redistributes hospital earnings to those in weaker fiscal shape, asking hospitals to pay an additional $140 million in fiscal year ‘26-27.
On the flipside, Lamont also said his proposals would include $70 million for the purpose of Medicaid rate increases. Lamont estimated that this adjustment would significantly increase federal Medicaid reimbursement, ensuring that “hospitals are made whole.” Jennifer Jackson, CEO of the Connecticut Hospital Association, however, has released a statement denouncing these proposals.
“The Governor’s budget increases the taxes paid by hospitals, reduces their reimbursements for providing care, and hurts patients, while doing nothing to address the $1.4 billion annual Medicaid shortfall, increase access, or define a long-term vision for healthcare,” read Jackson’s statement. “We ask Governor Lamont to reconsider these proposals and work with us to build a budget that protects patients, supports care delivery and the healthcare workforce, and plans for Connecticut’s future.”
Candelora also criticized the proposals, saying it “targets our already fragile hospital system with a costly tax scheme that will drive up healthcare costs for residents.”
On the topic of pharmaceuticals, Lamont proposed capping generic drug prices at the rate of inflation, continued expansion of the state’s ArrayRx discount card, and funding to import cheaper pharmaceuticals from Canada. Lamont also said that the state’s Department of Social Services (DSS) would look for news to lower the cost of, and increase access to, at-home nursing services.
“Our broader study of Connecticut’s managed fee for service shows we are very competitive, except when it comes to treating the chronically ill and seniors who seek an alternative to nursing homes,” said Lamont. “Andrea Barton Reeves [DSS Commissioner] is looking at alternatives that provide better wrap-around services, allowing you to age at home.”
Outside of healthcare, Lamont announced several smaller initiatives to increase resident affordability, such as the removal of licensing fees for nurses, dental hygienists, therapists, electricians, plumbers, HVAC, and sheet metal workers. Lamont said the state would look to “hold the line on property taxes,” by increasing property tax credits from $300 to $350, as well as increasing municipal aid by $230 million over the next two years.
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