As the pandemic continues to inflict broad economic damage in Connecticut at the same time the state's financial forecast appears, conversely, to be improving, Gov. Ned Lamont could face growing pressure to do something he's so far resisted — spend more state dollars.

Lawmakers who drive decisions about state spending are increasingly concerned about the fiscal harm being experienced in three key sectors: higher education, particularly Connecticut's community colleges and universities; nonprofit providers who care for some of the state's most vulnerable residents; and municipal governments.

The pressure on Lamont, a Democratic governor in his first term, to be more generous intensified last week when the state reported surging tax receipts had reduced Connecticut's $2 billion deficit by nearly 40%, increasing the likelihood that the Lamont administration will avert major tax hikes next year.

At the same time, the state's rainy day fund has ballooned to more than $3 billion, exceeding its legal limit of 15% of the state's annual operating expenses. That record-setting reserve means state officials have more options to assist those harmed by the pandemic, even absent a third wave of federal coronavirus relief aid — and would still have one of the largest fiscal cushions in Connecticut history.

It also means lawmakers are increasingly itching to open the state's tightly held pursestrings when the legislative session begins in January.

"How do we not have higher education in the forefront?" asked Rep. Toni E. Walker, D-New Haven, longtime co-chairwoman of the Appropriations Committee.

Lamont has been reluctant, to date, to tap the burgeoning rainy day fund to shore up state-funded programs hurt by the pandemic, saying Congress and President Trump should have authorized another wave of aid to states months ago.

When asked recently whether he would reconsider his position if more federal aid isn't forthcoming by the time the General Assembly returns on Jan. 6, the governor was noncommittal.

"Nothing's off the table, but let's see where we are," Lamont said. "I think you're going to see a lot of clarity on this pretty soon."

Higher education crisis looming

The system that includes the four state universities, 12 community colleges and online Charter Oak State College is reporting an unprecedented $70 million shortfall before the fiscal year ends on June 30.

Similarly, the University of Connecticut recently asked for more than $100 million in assistance. And the UConn Health Center in Farmington secured a $45 million loan to keep its finances afloat for eight more months.

The universities are also grappling with a dangerous development that — if it persists — could pose a serious long-term threat to their fiscal stability.

Namely, students are not living on campuses in the numbers that were anticipated.

Officials at the four regional state universities planned for reduced occupancy and more spacing in dormitories but still hoped to hit about 75% occupancy when students returned to campus this fall. Actual occupancy is about 53%.

At UConn's main campus in Storrs, dorms are only about 50% occupied.

That, in turn, means less money from students for room and board, funding that has been increasingly crucial for public universities over the past two-and-a-half decades.

Beginning in the mid-1990s, the state dramatically increased borrowing for dormitories, lecture and research halls and other projects to accommodate more students at public colleges and universities.

But that came at a price.

Over the same period, the share of higher education operating budgets supported with state funds has dwindled. In the early 1990s, more than half of UConn's operating budget was paid for by the state; now it is a little less than one-quarter.

In other words, the state covers a smaller share of operations because it expects higher ed to build more dormitories, attract more students, and collect more room and board fees.

Community colleges don't provide dormitories, but enrollment is a key part of the state's plan to help all students in the system graduate debt-free. Officials were hoping to keep enrollment flat this fall, but instead it dropped 15%.

With more than 1 million applications for unemployment benefits filed in Connecticut since mid-March, legislators can't afford to watch colleges and universities struggle much longer, Walker said, adding those institutions must be ready now to retrain or otherwise assist displaced workers.

"We've got to step up and give them new opportunities for training so they can find new professions, so they can stay in Connecticut and so they can feed their families," she said.

Deputy House Minority Leader Vincent J. Candelora, R-North Branford, agreed, saying "our community college and our higher education structure is going to have to be looked at sooner rather than later," especially if a decline in enrollment is becoming a trend rather than an outlier.

But Candelora cautioned that legislators still have to be wary about spending. The $1.3 billion deficit Lamont reported Tuesday for the current fiscal year represents more than 6% of the state budget's General Fund, which covers most operating expenses.

Still, that's a much smaller gap than the $2 billion shortfall the administration was forecasting earlier this fall. Surging income and sales tax receipts have closed much of that gap.

Nonprofits say state's safety net is tearing

Sen. Cathy Osten, D-Sprague, the Appropriations Committee's other co-chair, said she also wants to be strategic about bolstering spending in any areas. But, like Walker, she said some areas of need are clear.

Higher education is one, and another involves the hundreds of small, nonprofit agencies that deliver the bulk of state-sponsored social services.

"I do believe with nonprofits we will need to have a mid-year adjustment for them," Osten said.

Connecticut spends about $1.4 billion annually on these community-based programs, a sum that hasn't changed much in two decades. The industry pegs the inflationary loss it's taking on these payments at $460 million per year.

The network as a whole has been hemorrhaging millions of dollars in operating revenue since the pandemic began, having to either curtail or suspend many services while spending additional dollars on cleaning, staff testing and protective gear.

Nonprofits received a share of the $350 million in federal relief funds that the Lamont administration also spread among state agencies, municipalities, hospitals and nursing homes to offset the cost of testing and protective gear costs.

But Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance, said it's been nowhere near enough and many agencies are at risk of closing.

"Our members, who've had success in limiting or eliminating COVID spread in their facilities, are starting to see an uptick just like the rest of Connecticut," he said. "The lack of funding, the increased need, a second wave of COVID — that's a perfect storm.

"In many cases, once a program stops, it stops. People are not going to get those services anymore," Casa added.

Towns say pandemic has cost them $400 million in revenue

Legislators also are waiting for information from cities and towns, warning there could be a third group in line for more state funding when the legislative session begins in January.

Municipalities estimated last summer that the pandemic had added about $63 million in additional costs to local government, though some warned that many communities hadn't factored into their calculations the cost of reopening schools in the fall.

Lamont reserved about $75 million in federal relief funds to reimburse municipalities for COVID-19-related expenses.

More importantly, municipalities also projected about $400 million in revenues lost or deferred because of the pandemic. And they aren't eligible to seek federal reimbursement for those dollars.

In fairness, some of that $400 million involves property taxes owed in July that wouldn't be paid until this fall. Shortly after the pandemic began, Lamont ordered communities to either add 90 days to the deadline for paying July property tax bills, or to reduce the penalty for delinquent payments from 18% to 3%.

Some towns voluntarily did both to assist struggling taxpayers.

But even if the immediate revenue hit to municipalities is less than $400 million, Joe DeLong, executive director of the Connecticut Conference of Municipalities, said the full extent of fiscal damage inflicted by the pandemic is not yet known.

As restaurants and other businesses close after months of reduced business, communities may not have experienced the worst of the pandemic yet when it comes to lost tax revenues. And this threat will continue for months, he said, making the need for timely state assistance — to municipalities and to businesses — crucial.

Lamont did designate $50 million in federal relief funds Tuesday for a new program to provide a $5,000 grant to 10,000 small businesses to help cover pandemic-related costs.

"That is the big crushing blow, if these businesses start closing," DeLong said, adding extra state funding may be needed because Congress has shown federal intervention is far from certain. "Anybody who pays attention to what goes on in Washington, D.C. couldn't be confident of  anything."

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