House adopts $46B budget that avoids tax hikes
The House of Representatives approved a $46.4 billion two-year state budget shortly after midnight Wednesday that avoids major tax hikes, pumps huge new dollars into municipalities and social services and provides tax relief for restaurants and the working poor.
The measure passed 116-31, with 22 out of 53 Republicans joining 94 Democrats in the first bipartisan budget vote since 2018. The bill now heads to the Senate.
The budget does not touch Connecticut’s record-setting rainy day fund, but it does rely on $1.75 billion in federal coronavirus relief grants to stay in balance.
And with the regular legislative session approaching its mandatory adjournment at midnight Wednesday, it remains unclear whether lawmakers will need a special session later this summer to resolve other budget issues, including a new two-year state borrowing plan expected to include major new financing to support Connecticut’s poorest cities and towns.
“The pandemic worked every community in Connecticut,” said Rep. Toni E. Walker, D-New Haven, longtime co-chairwoman of the Appropriations Committee, who battled over the past year both through COVID-19 as well as breast cancer.
“We all have understood pain,” she said, citing more than 512,000 unemployment claims statewide, devastated industries, interrupted education systems and disabled people left isolated without services. “It’s time for us to lock arms together and address those issues in the best way.”
The new budget would spend $22.7 billion in the fiscal year that begins July 1, an increase of 2.6%, before climbing another 3.9% in 2022-23.
At Gov. Ned Lamont’s insistence, the package includes no major tax hikes, though the legislature did approve the governor’s proposal for a new highway usage fee on large commercial trucks through a separate bill. That measure cleared the House on Tuesday and the Senate on Wednesday morning, with Republicans unanimously opposing it in both chambers.
“That is exactly the outcome the people of our state are looking for: They want our elected officials to work together across the aisle and craft collaborative public policy to the benefit of our residents,” said Lamont, whose administration negotiated the budget deal with legislative leaders, after the House vote.
The Democratic governor called it a “historic budget” not only for the lack of tax increases, but also for “making transformative investments across our communities.”
Connecticut has its first bipartisan budget vote since 2018
The new budget “is maintaining all of our important fiscal policies,” said House Minority Leader Vincent J. Candelora, R-North Branford.
That includes not only staying under the statutory spending cap but preserving the state’s budget reserve.
Technically, the rainy day fund, which closed last fiscal year at just over $3 billion, cannot grow much, since it already is equal to 15% of General Fund spending, the legal maximum.
That means most of the $1.4 billion Connecticut expects to have left over when the current fiscal year ends on June 30 would be deposited into its badly underfunded pension programs for state employees or municipal teachers.
Other Republicans still were not comfortable with the new budget.
Rep. Michael France of Ledyard, ranking GOP House member on the Appropriations Committee, voted against the package, saying he wanted to see a leaner spending plan given all of the fiscal chaos Connecticut’s economy has faced over the past year.
“What are we trying to accomplish when we’re coming out of the pandemic?” France said, adding he particularly was disappointed that spending grew nearly 4% in the second year of the budget. “We should have been looking a little more prudently at that.”
Republicans, who haven't held a majority in the House since 1985 nor in the Senate since 1996, had narrowed the margins considerably entering the 2017 session and worked with Democrats to end nine months of political gridlock and adopt a bipartisan budget that year that included many fiscal reforms, including a new savings program that has led to the hefty budget reserve.
Lawmakers from both parties cooperated again in 2018 as they amended the second year of the two-year budget passed in 2017.
But Republicans unanimously voted against the first biennial budget passed during Lamont's administration in 2019. The 2020 session ended early, with adjustments to that two-year package, because of the pandemic.
Tax relief for working poor, big money for cities and towns
Republicans might have unanimously opposed the state budget this year had liberal lawmakers in the House and Senate had their way. Progressive Democrats tried to impose income tax surcharges on Connecticut’s wealthiest households and establish a new digital media ads tax and use the proceeds to provide even more assistance for cities and tax relief for low- and middle-income households.
Still, the budget increases the state Earned Income Tax Credit, which provides $118 million in total refunds to about 194,000 working poor households. The EITC, equal to 23% of the federal income tax credit of the same name, would rise to 30.5% in the new budget, providing an additional $40 million in annual relief.
Progressive Democrats also hoped to secure a nearly $50 million one-time tax break for Connecticut’s pandemic-battered restaurant industry, but that relief was scaled back to $7 million. Restaurants will be allowed, for one week in the 2021-22 fiscal year, to keep seven days’ worth of sales tax receipts.
Corporations didn’t fare as well. While the new budget would expand the research and development tax credit within the corporation tax — saving companies $24 million over the next two fiscal years — previously approved corporate tax cuts worth $180 million and scheduled to take effect in the next two-year budget cycle were suspended.
“Everyone can celebrate the restaurants that got so much hurt in the pandemic,” said Rep. Sean Scanlon, D-Guilford, co-chairman of the tax-writing Finance Committee, who had also fought for a major relief tax for middle-income households through the creation of a $300-per-child state income tax credit.
That proposal was blocked by the Lamont administration, which argued the state might not be able to afford it two years from now when the federal pandemic relief largely has been exhausted.
But by keeping most taxes flat, and through other features, Scanlon added, the new state budget still provides relief and gives Connecticut’s economy a jump-start in its recovery.
One of the biggest components in the new budget involves a major expansion in municipal aid.
The plan dramatically increases the PILOT [Payments In Lieu Of Taxes] grants that reimburse communities for lost revenue tied to property that is exempt for local taxation.
This would increase by more than $120 million in each year of the budget. It also would expand Education Cost Sharing grants to local school districts by a total of about $140 million over the biennium.
Cities and towns also may be in line for more aid when the legislature adopts a new two-year bond package, though that action might not be completed before the regular session ends Wednesday.
Democratic legislative leaders and Lamont have been negotiating a plan to invest hundreds of millions of dollars annually in capital projects and programs in the state’s urban centers. House Speaker Matt Ritter, D-Hartford, said officials had been talking about dedicating about $175 million in state bonding annually for five years. The House passed that measue early Wednesday, but it still needs Senate approval.
More funding for nonprofits, and to expand access to health care
Another top priority in the new budget centers on the community-based nonprofit agencies that deliver the bulk of state-sponsored social services in Connecticut.
The industry has not received a major funding increase in more than a decade, and the CT Community Nonprofit Alliance estimates that, after adjusting for inflation, compensation has effectively fallen by $461 million per year since 2007.
The new budget chops into that gap considerably, dedicating an average of about $105 million more per year over the biennium for these agencies.
But the budget stipulates that nearly half of those funds, about $100 million, must effectively be used to resolve a labor dispute involving unionized caregivers at group homes that serve developmentally disabled clients.
More than 2,000 group home workers called off a planned strike at the last minute on June 3 after the Lamont administration pledged to increase funding for wages and benefits. But nonprofit agency owners had assumed the state would assign additional dollars to cover that expense, rather than designate a portion of the industry’s rate increase for that purpose.
“Given the state’s fiscal condition and the size of the projected surpluses, the state has the ability to treat all providers – and the people they serve — equitably,” said Gian-Carl Casa, president and CEO of the alliance.
The new budget also would increase eligibility for low-income residents to receive public subsidies to help buy health insurance on the state’s exchange. The Lamont administration estimated about 30,000 low-income residents would be helped by this initiative.