Gov. Lamont puts his signature on a new two-year state budget Wednesday as legislative leaders and his budget chief look on. Governor's office

Gov. Ned Lamont signed the new $43.4 billion, two-year state budget into law Wednesday.

The Democratic governor hailed it as a plan that averts a big deficit without raising income tax rates, makes key investments in education, job growth and health care, and promotes long-term fiscal stability.

But Republicans say the package overtaxes businesses and consumers, spends and borrows recklessly, leaves Connecticut with no viable long-term transportation building program, and skirts the legal requirement of a balanced budget.

“For years, instability in the state’s finances has resulted in slow growth and volatility in our economy — and this budget was adopted with a focus on providing the foundation from which our state can grow,” Lamont said. “When the fiscal year closes, Connecticut will have the largest rainy day fund in history and this budget maintains and grows our reserves, providing reliability and predictability for our taxpayers, businesses, and those looking to invest in our state well into the future.”

But Senate Minority Leader Len Fasano, R-North Haven, said “It’s no surprise the governor is running to sign this budget as quick as he can before even more problems come to light. He’s signing it behind closed doors with no fanfare whatsoever because this is not a budget to be proud of. It doesn’t balance. It’s gimmick-laden. The whole document is a sham.”

State finances were projected to run $3.7 billion in the red over the next two fiscal years combined unless adjustments were made. The new budget meets one of Lamont’s chief goals: to avert this potential shortfall without increasing income tax rates.

Connecticut also is projected to have more than $2.2 billion in its emergency reserve by Sept. 30. This would be the largest fiscal cushion in state history, and could grow by several hundred million more dollars over the next two years if revenue projections hold up.

Spending growth in the General Fund — which covers the bulk of annual operating expenses — is limited to 1.7 percent in the first year and 3.4 percent in the second.

The budget also restructures contributions into two state pension funds, cutting expenses over the next two fiscal years but shifting billions of dollars in contributions, plus interest, onto taxpayers after 2032.

It resolves a four-year old lawsuit hospitals have pending against Connecticut over a controversial provider tax. Though full details of the settlement haven’t been released and still must be ratified by hospitals, Lamont administration officials have estimated it could cost the state about $160 million later this summer.

It expands the HUSKY A Medicaid program for working poor adults to serve roughly 4,000 more people each year and includes rate increases for nursing homes which are key to averting strikes this summer at 25 facilities.

The budget increase gives cities and towns an extra $116 million in Education Cost Sharing grants over the next two years combined and expands funding for workforce development programs. It also establishes a program in the second year to allow full-time students to attend community college debt-free. But that is conditional upon the state achieving success with new online lottery sales and recruiting new community college students who qualify for large amounts of federal financial aid.

But Republicans countered that the plan is riddled with tax hikes, financial gambles and question marks.

The budget generates about $340 million in the first year and $365 million in the second year by increasing taxes and fees and by canceling previously approved tax cuts that haven’t yet taken effect. 

And this doesn’t include $1 billion in tax relief that was supposed to be delivered to hospitals. Most of that relief is expected to be canceled, though, as part of the settlement.

Several sales tax exemptions on services are eliminated. The sales tax rate on digital downloads rises from 1 to 6.35 %, while a 1 percentage point surcharge is placed on restaurant food and other prepared meals.

Grocery store and other retail shoppers will pay a new 10-cents-per-bag tax on plastic bags and there is a new tax on certain vaping products. The alcoholic beverages tax will rise 10 percent.

Owners of limited liability corporations and other small and mid-sized businesses that don’t pay the state corporation tax will pay an extra $50 million per year due to the reduction of an income tax credit.

The business entity tax, a $250 fee paid once every two years, is repealed, saving companies $44 million But the new budget raises three times that amount from businesses through other fee and tax changes.

Seniors will receive a promised tax cut through expanded income tax exemptions for social security and pension earnings. But other income tax relief scheduled to kick in for retired teachers, college graduates with student loan debt, and middle-income households without children, all was suspended.

And a new “mansion tax” surcharge was added to the real estate conveyance levy. It effectively targets only those who sell houses for more than $2.5 million and then move out of Connecticut.

The new budget also cancels more than $170 million in sales tax receipts originally set to be dedicated to transportation over the coming biennium.

To remain in balance, the plan assumes the Lamont administration will save almost $460 million across two years by collaborating with state employee unions.

This involves lowering health care costs — without reducing benefits — through various efficiencies, and also refinancing contributions into the pension fund. 

Fasano noted neither of these initiatives has been resolved yet and the new fiscal year begins Monday.

The two-year budget also assumes $90 million per year in state income tax receipts — above the level fiscal analysts for the executive and legislative branches projected in their last joint forecast on April 30.

Lamont said Tuesday that income tax collections were more robust in May, and the additional revenue will be received. These are “good, conservative assumptions that are going to play out in the future,” he said.

But Fasano called the move reckless, adding that it’s been nearly a decade since the last recession ended and several economists have warned Connecticut and the nation could topple into the next one in the next year or two.

“I don’t know what world they are living in,” he said.

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Keith M. PhaneufState Budget Reporter

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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4 Comments

  1. The new budget also cancels more than $170 million in sales tax receipts originally set to be dedicated to transportation over the coming biennium.

    That’s sure a nice way to say he’s swiping $170 million more money from the Transportation “Lockbox” that Democrats assured us wouldn’t happen with a “lockbox.” To make matters worse, he did this in order to push his ‘transportation crisis’ meme to slam through tolls. Oh yeah, he first mentioned those tolls would only be on ‘out-of-state trucks,’ which VERY quickly changed to ‘only trucks,’ which became everyone right after the election.

    Finally, the Governor loves to brag about no increase in the income tax rates. However, he happily placed a .5% employment tax on those employees who aren’t State, Local, or Teacher union members. That, my friends is an income tax increase.

  2. There is no support for this budget from the majority of businesses in our state. Without those businesses growing we will see Connecticut’s economy and wealth continued decline. Gov. Lamont’s budget is not properly balanced, many bills are poorly written (inflexible) and they are 100% a product of the Democrat party. A party, that once again failed to significantly REDUCE taxes, LOWER our cost of living and ELIMINATE unnecessary govt. spending. But at least it was on time! Pathetic effort.

  3. This is a smoke and mirrors budget at best. At worst, it may be the final nail in the CT economy. People and businesses are rushing for the exits.

  4. Continued “tax and spend” bringing “stability” to CT ? Neither the CT business community nor most residents don’t buy that argument. There’s no evidence from post War America that States in long term economic distress, e.g. decade long stagnant economies, ever pull themselves out by “tax and spend” policies. Gov. Malloy demonstrated the substance of that well known economic observation.

    CT doesn’t need “stability”. It needs a business climate favorable to new firms making major investments bringing good jobs to CT – a State with employment stagnant now for an entire decade. Best we can judge Gov Lamont has followed expectations that he would continue Gov. Malloy’s basic strategy of “tax and spend” avoiding CT Budget cuts. Unchanged CT employment for the first half of 2019 while the nation is booming ought get the Governor’s attention.

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