HARTFORD — Two months into the new fiscal year, the state budget is still on track to end the year with a small surplus.

Office of Policy and Management Secretary Melissa McCaw told state Comptroller Kevin Lembo in her monthly letter that she expects to end the fiscal year with a $126.1 million surplus.

However, her “balance projection does not include the impact of a potential settlement of hospital litigation.”

The Connecticut Hospital Association sued the state of Connecticut in 2016.

In May, the organization and the administration announced they had reached a settlement with the administration. The budget approved by lawmakers in June included the use of $30 million in surplus funds from last year to help settle the case.

The General Assembly is expected to reconvene a special session this fall to approve the deal, which has yet to be detailed.

After two years of paying $900 million annually in provider taxes, hospitals were supposed to see the tax drop to $384 million this year. But Gov. Ned Lamont’s original budget proposal maintained the tax at $900 million and gave them back $453 million as part of a calculation to get more federal Medicaid reimbursement. That ends up being a $43 million loss per year for the hospitals.

In addition, Lamont’s budget didn’t change the calculation for the inpatient hospital rates. That means hospitals will lose about 16.8 percent or about $170 million annually. The decision will save the state about $59.1 million in 2020 and $61.8 million in 2021.

It’s unclear if any of those details were changed as part of the settlement agreement, which has not been made public or shared with the court.

The court proceedings have been put on hold since May when the two sides entered settlement talks. According to court documents, the parties involved in the lawsuit are expected to report back to court on Oct. 15.

As far as the budget is concerned, McCaw is projecting that they will spend $15 million more than originally anticipated based on legal claims against the state. Revenues are on track to match what was approved in the final budget.

According to a report by Pew Charitable Trusts, Connecticut’s revenues have rebounded 15.9 percent since the recession.

Connecticut Media Group