Lamont spares higher ed from efficiency cuts to balance CT budget

While Gov. Ned Lamont’s administration has charged public colleges and universities with not doing enough to cut costs, it won’t ask them to sacrifice over the next year as it tackles the daunting task of achieving huge efficiency savings in the new state budget.

The $26 billion spending plan legislators set for the fiscal year that began July 1 directs the Executive Branch — which oversees the bulk of spending — achieve $209.4 million in savings once the budget is in force. The Judicial Branch will find $5 million in savings, while the legislature gave itself no cost-cutting mandate.

Annual savings directives are common, though Lamont’s task — which includes $177.7 million in the General Fund and $31.7 million in the Special Transportation Fund — is nearly 50% larger than last fiscal year’s. Governors traditionally achieve them by spreading the pain among dozens of state agencies, holding back a share of their allotments.

But higher education units have been in funding crisis in recent years, and Lamont wants them to start preparing immediately for the next state budget cycle, which doesn’t begin until July 2025. That’s when nearly $700 million in temporary funds used to prop up the current budget will likely have vanished. And about $310 million of those temporary funds are being shared among the University of Connecticut, the regional state universities and community colleges.

“The administration is not holding back funds from our higher education units so that they can begin right-sizing and preparing to live within their historic block grant levels,” the governor’s budget spokesman, Chris Collibee, said last week.

More than half of that temporary money involves emergency COVID relief grants Congress approved for Connecticut in 2021 through the American Rescue Plan Act. The rest involves a portion of the large state budget surpluses achieved over the past two years.

Public colleges and universities have been some of the prime recipients of federal pandemic relief and state surplus dollars since the coronavirus first struck Connecticut four years ago. And higher education officials say they’ve had no choice but to use those temporary funds to cover ongoing costs, particularly staffing, even though they have begun to trim positions.

The administration notes enrollment has slipped at community colleges and regional universities. But that system had been struggling financially for a decade before COVID arrived in 2020.

The Board of Regents for Higher Education, which oversees that system, has raised tuition and fees frequently in recent years, while cutting staff and tightening programs.

Community college tuition next fall will be up 11% from two years ago, while tuition and fees at regional universities will be up 7% from 2022. The system also offered retirement incentives this spring to encourage veteran staffers to retire.

“Connecticut State Colleges and Universities and the Board of Regents are charting a sustainable path forward to continue to do the work that transforms the lives of our students and supports Connecticut’s economy,” said CSCU spokeswoman Samantha Norton. “We are appreciative of OPM’s, the governor’s, and the General Assembly’s continued commitment to investing in our public colleges and universities and for implementing and allocating a spending plan that best serves our students.”

UConn also has raised tuition and student fees for this fall and has raised clinical revenues at its Farmington-based health center — which includes its medical and dental schools and John Dempsey Hospital — by more than 150% over the past decade . Clinical revenues now fund about 60% of the center’s annual budget.

UConn officials came under fire from faculty unions this spring by launching plans to trim costs by about 3% annually over the next five years. It also tapped nearly $14 million from reserves to close shortfalls in the new fiscal year.

“UConn and UConn Health are grateful that there have not been any holdbacks to date for fiscal year 2025,” read a statement from the state’s flagship university. “As we have already implemented difficult reductions across UConn and UConn Health, any additional reductions would create increased stress to the current budget.”

Higher education officials also note that the hefty raises Lamont has negotiated with state employees in recent years, roughly 4.5% annually since 2021-22 , are making it harder to control budget growth.

The state provides public colleges and universities with dollars to cover these raises, but only for certain workers whose positions are funded through state budget block grants. And higher education units employ thousands of other workers, who also must receive the same raises, with tuition dollars and other funds not provided through the state budget.

At UConn’s main campus in Storrs, about 68% of salary costs are covered outside of the state budget, while at the UConn Health Center the share is close to 81%.

According to the Board of Regents system, about 40% of community college operations, including staffing, are paid for with tuition, fees and other revenues that don’t include the state block grant. For the regional state universities, it’s about 60%.

But the projected gap in state finances is big for the next biennial cycle, which will cover the 2025-26 and 2026-27 fiscal years. Lamont administration officials say higher education leaders have to accept that emergency federal aid is nearly exhausted to live without it.

Jonathan Dach, who recently became senior adviser to Lamont, was still the governor’s chief of staff in late June when the University of Connecticut adopted a $1.68 billion budget for its main campus in Storrs and for regional satellite campuses, and a $1.66 billion plan for its health center.

Though state governments must allocate all federal ARPA dollars by this December, recipients don’t have to spend all funds until December 2026.

And Dach protested UConn’s decision to use all ARPA funds in the current fiscal year, suggesting instead that some be used now, and some in each of the next two years. This option, accompanied by more cost-cutting measures, would allow for a smoother transition.

“I think we’re making a mistake,” Dach told UConn’s Board of Trustees at its June 26 meeting . “There’s going to be a significant budget shortfall going into FY 26. We cannot reasonably hope to get fully made up from state dollars what we’ve been getting from federal dollars.”

But there are other balancing options besides more spending cuts or tuition hikes.

Even as Lamont braces for a nearly $700 million potential hole in the state budget to be adopted next spring, nonpartisan analysts say a controversial program Connecticut has established to save “volatile” tax receipts will capture almost $1.2 billion next fiscal year and between $805 million and $910 million annually through 2028.

Critics say this “volatility adjustment” is poorly calibrated and is taking hundreds of millions of dollars of stable tax receipts out of the budget along with unstable dollars.

Since it was launched in November 2017, the program has captured more than $950 million annually, except in the 2019-20 fiscal year — when the pandemic struck and it still grabbed $530 million. Since its inception seven years ago, it has removed an average of $1.4 billion from the budget, and those funds have been used to build state reserves and pay down Connecticut’s massive pension debt.

The savings program is one of key elements of a package of budget controls that Lamont frequently calls “fiscal guardrails,” much to the frustration of progressive Democrats and labor unions, who argue the system is weakening education, health care, social services and other core programs. Connecticut could adjust the system, preserve programs, and still save extra funds to pay down debt, they argue.

Seth Freeman, president of the union representing community college faculty, said the administration’s decision to spare colleges and universities from midyear budget cuts “does not excuse the governor’s fanatical adherence to the fiscal guardrails, which continues to force unnecessary cuts that are an assault on the working class, especially Black and brown communities who rely heavily on essential state services. This is a drop of water when the whole system is parched from the draconian financial constraints.”