Lamont uses federal dollars and reserves to boost local aid, avert tax hikes in his new budget
More budget challenges loom after the 2022 state elections
Gov. Ned Lamont proposed a $46 billion, two-year budget Wednesday that relies heavily on federal aid and state reserves to close a major deficit without tax hikes and bolsters funds for cities and towns.
But while Lamont’s plan provides short-term stability, it also could leave Connecticut with several challenges to be resolved after the 2022 state elections.
The package would channel more than $400 million in emergency federal relief to low-performing school districts, according to several sources that have reviewed the proposal. But it also would suspend plans to bolster regular state-funded aid for municipal schools by $90 million in the next two-year budget cycle.
Municipalities also would share receipts from a new tax on marijuana — at the same time that a more lucrative sales-tax revenue-sharing plan to assist towns remains in limbo.
The governor’s proposal does not expand Medicaid eligibility to cover more poor residents — something many of the governor’s fellow Democrats in the legislature’s majority called essential for Connecticut to emerge strong from the pandemic. And it also lacks a rate increase for the private, nonprofit agencies that deliver the bulk of social services.
Lamont did not propose tolls this year as he did in the last two, but he did call for a new mileage-based highway tax on large trucks and also would shift a a huge portion of sales tax receipts into Connecticut’s cash-starved transportation program.
And while the governor was able to steer clear of tax hikes, his plan would cancel previously approved tax relief for businesses and retired teachers.
“At the end of the day, the governor will be focused on preparing Connecticut for recovery and growth,” Office of Policy and Management Secretary Melissa McCaw, Lamont’s budget director, told the CT Mirror last week. That means preserving services and protecting taxpayers, particularly in distressed municipalities that have been ravaged by the coronavirus pandemic.
The package, which Lamont presented to the legislature at noon, would boost spending 2% in the fiscal year that begins July 1 and 3.5% in the year after that.
Lamont has warned for months that, despite the pandemic, Connecticut could not afford to be too aggressive with its spending.
Analysts warned in November that state finances, unless adjusted, would run $4.3 billion in the red over the next two fiscal years combined. A rosier revenue forecast in January whittled that shortfall down to about $2.6 billion, or roughly $1.3 billion per year. But that still represents more than 6% of the budget’s General Fund — an imposing gap.
Still, Congress authorized major new relief for education and housing in December that includes nearly $1 billion for Connecticut.
Connecticut has amassed just over $3 billion in its rainy day fund, and sources familiar with the package said Lamont relies on that and federal pandemic relief to fill at least two-thirds of the holes in the next budget.
Towns benefit from federal aid, marijuana revenues
The administration has been quiet about its plans for some of the federal aid Connecticut has received since the coronavirus struck last spring. And legislators lately have been pressing Lamont for details on his plans for the new education- and housing-related aid approved by Congress in December.
The governor finally tipped his hand with his new budget.
School districts already knew they would receive $220 million more in federal relief in each of the next two fiscal years, but Lamont makes sure the state’s finances also benefit from this arrangement.
To help balance Connecticut’s budget while districts receive dollars from Washington, Lamont would suspend two years of a 10-year initiative to increase the Education Cost Sharing program, the largest state-funded grant for districts.
Previously approved ECS increases of $30 million in 2021-22 and $60 million in 2022-23 would not be delivered.
Grants would be scheduled to grow again, sources said, in the 2023-24 fiscal year. The federal relief would have expired by that point.
Lamont, who has pressed legislators to curb state borrowing, would use the credit card himself to cover half of a $100 million increase in non-education aid for municipalities next fiscal year. The other half would come from federal pandemic relief.
To keep that new source of local aid from expiring, Lamont would support taxation and regulation of marijuana sales for recreational use.
When the legislature’s nonpartisan Office of Fiscal Analysis last projected receipts from taxing marijuana, in 2017, its annual revenue estimate of $115 million was based on models from other states.
Pro-commercialization advocates have suggested Connecticut’s annual take could be $170 million or more.
No Medicaid expansion or boost for nonprofits
Health care programs, sources said, would not receive a funding boost similar to that proposed for cities and towns.
Lamont’s plan doesn’t include funding to expand HUSKY A, Connecticut’s Medicaid-funded health insurance program for poor households with children.
A coalition of 30 progressive Democratic lawmakers pressed for this and other health care and education investments last week, calling them essential to mitigate a racial divide in health care access only worsened by the coronavirus.
The budget also lacks a rate increase for the nonprofit social service agencies that have been pleading with Lamont since he took office two years ago for major relief for an industry whose funding has grown little over the past two decades.
According to the CT Community Nonprofit Alliance, the industry needs more than $460 million in additional funding annually simply to reverse this long-term fiscal damage.
Nonprofit leaders also say their businesses, collectively, have lost millions of dollars since the pandemic began. Safety, cleaning and hazardous-duty pay costs have increased, and revenues have been lost as certain programs are suspended or scaled-back to maintain social distancing.
Transportation program gets short-term boost
The governor would push more resources into a state transportation program headed for insolvency in 2024 or 2025, but these measures aren’t expected to solve that challenge over the long haul.
Legislators approved long-range plans in 2015 and 2017 to shift more sales tax receipts away from other programs and into the budget’s Special Transportation Fund. The STF not only funds Department of Transportation operations but also covers the debt payments on the hundreds of millions of dollars Connecticut borrows annually to upgrade highways, bridges and rail lines.
Lamont was chastised by transportation advocates two years ago when he and lawmakers scaled back that transfer. The governor’s latest plan restores that schedule, adding nearly $200 million in sales tax receipts to the STF in 2022.
To complement that, Lamont also is asking lawmakers to approve a new highway usage tax on heavy tractor-trailer trucks. Full details on the proposal weren’t available late Tuesday, but sources said the fees would be based on mileage and would be lower than those charged by neighboring New York.
Sources also said that while Lamont was able to avoid major tax hikes in his plan, he did generate more revenue by seeking to defer or cancel some previously approved tax relief.
The state’s 10% surcharge on its corporation tax was scheduled to sunset in 2020 — meaning firms filing returns this spring would get a break. But Lamont’s plan would keep it in place, costing corporations an estimated $15 million.
The budget also would suspend a tax break for retired teachers. Connecticut currently exempts 25% of their pensions from the state income tax, and that was slated to grow to 50% for returns filed in 2022. But it would remain at 25% under the governor’s plan.
This would cost retired teachers about $8 million per year.
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