State budget talks bogged down close to the finish line Memorial Day weekend, but the stumbling block — aid to cities and towns and the statutory spending cap — is a big one.
And while officials have until June 9 before the regular session closes, one key House Democrat hinted that chamber might run its own budget plan — without the backing of Gov. Ned Lamont or the Senate — if consensus isn’t reached by Thursday or Friday.
“The House is ready to get this budget done,” Rep. Sean Scanlon, D-Guilford, who co-chairs the tax-writing Finance, Revenue and Bonding Committee, said Monday. “We feel we have a really good appropriations package and a finance package that meets the moment.”
And though Scanlon would not offer specifics on closed-door negotiations with the Lamont administration, he said the package includes tax relief “for those that need it most.”
Leaders of the Democrat-controlled House and Senate have said on several occasions in recent weeks they are confident the new budget will include a state income tax cut for Connecticut’s working poor. This would be achieved by expanding the state Earned Income Tax Credit, which currently is valued at 23% of the federal EITC, providing about $118 million in refunds to just under 200,000 households.
It was unclear Monday to what level it would rise, but leaders have said they hope at least to restore it to the 30% mark, which is where it stood when the state credit was enacted in 2011.
Majority Democrats in the House and Senate stuck their political necks out in March, promising in a very public fashion to add an estimated $130 million to $150 million annually in the next biennial budget to what are commonly known as PILOT grants to cities and towns.
A long under-funded program, the Payment In Lieu Of Taxes grant reimburses municipalities for a portion of the revenues they lose because certain properties — owned by the state and by most colleges and hospitals — are exempt from local taxation. They’ve also promised to increase grants to local school districts by about $110 million over the next two years combined.
But Democratic lawmakers can’t fit those aid increases under the budgetary spending cap.
To work around that, the Appropriations Committee wants to use an accounting maneuver known as a “revenue intercept” — an accounting tool that targets dollars before they arrive in the budget and assigns them for specific purposes. Because the cap only applies to budgetary appropriations, these dollars then can be used for local aid without violating the cap.
Though this technique has been employed by past governors and legislatures, both Lamont — a moderate Democrat — and minority Republican legislators have opposed this as a gimmick to subvert the spending cap, a mechanism designed to keep appropriations from growing faster than household personal income in Connecticut.
Sources close to budget talks said many Democratic lawmakers — particularly in the House — would be willing to drop tax hikes recommended on Connecticut’s wealthiest, in exchange for Lamont’s acceptance of the revenue intercept.
The finance panel proposed two income tax surcharges, aimed at households earning $500,000 per year or more, as well as a levy on digital media ads aimed at online giants like Google and Facebook.
The governor, a Greenwich businessman, has said raising state taxes on the wealthy would prompt them to flee Connecticut and that any tax hikes right now would jeopardize the state’s economic recovery from the coronavirus pandemic.
But it was unclear late Monday, even if Lamont is willing to deal, whether Senate Democratic leaders are ready to back off the rich and major corporations when it comes to taxes. If House Democrats do choose to vote Thursday or Friday on a budget they see as a compromise, the move would be designed to press Lamont and Senate Democrats publicly to find middle ground.
Max Reiss, the governor’s communications director, said “any potential vote” by the House “does not change Governor Lamont’s priorities of keeping all expenses within the spending cap and not raising taxes. No package has been presented to the governor which meets those requirements.”
Sen. John Fonfara, D-Hartford, chief proponent of the tax increases aimed at the wealthy, could not be reached for comment Monday.
But Fonfara has said increases are necessary, not only to maintain tax relief for the poor and middle class after federal pandemic relief expires in two years but also to fund major new investments in Connecticut’s urban centers. House Speaker Matt Ritter, D-Hartford, has proposed financing a decade of major state investments in poor cities financed with state borrowing, similar to the approach the state took in the 1990s and 2000s to rebuild its public university and college campuses.
Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee, said Monday she remains hopeful that Lamont and both chambers of the legislature can reach a budget deal before the session closes on June 9.
And while Osten didn’t comment on specifics of the closed-door talks, including revenue issues, she did say expanding local aid is an essential for any budget deal.
Legislators actually enacted a law in late March officially expanding the PILOT program, even though they never committed the dollars at that time, postponing that task until the biennial budget was adopted in June.
But many municipalities adopted their own local budgets in the interim, and they were paying close attention to legislators’ promises.
“Many of them already have set their budgets,” Osten said, “with those [extra PILOT] dollars incorporated in there.”