The governor’s annual budget presentation to the legislature is, arguably, the administration’s best opportunity to reset the course of government.
Even though legislators likely won’t adopt a final budget before May, the governor’s February proposal traditionally reveals initiatives that will enjoy the spotlight and have the best chance to be funded.
But for the first time in his administration, Gov. Ned Lamont is expected largely to push the status quo on Wednesday when he delivers his latest proposals for the 2022-23 fiscal year.
The Democratic governor will pitch a two-fold program to increase property tax relief to low- and middle-income households. Lamont, who pledged to cut taxes when he campaigned for governor in 2018 and has yet to deliver, is seeking re-election this fall, and many legislators anticipated he would try to check this item off his to-do list next week.
But there’s no plan to impose electronic tolling on Connecticut highways, as Lamont offered in 2019 and again in 2020. Nor is there something comparable to the new truck mileage fee and transportation climate initiative he pitched last year.
There’s no longer any court battle to resolve with Connecticut’s hospitals, the state’s pension systems have been re-financed, and legislators have made it clear the “debt diet” Lamont has wanted since Day One simply doesn’t work for them.
That doesn’t mean there’s nothing important in the budget. Connecticut is in the midst of a two-year plan to put nearly $6 billion in federal coronavirus aid to work to bolster its schools, health care system, economy, and state and local governments.
While the plan is generating big surpluses in state finances, the jury is still out on the overall Connecticut comeback. And since the state will invariably face a fiscal shock in 2024 — when $6 billion in federal aid has expired — Lamont is cautious about tackling anything more ambitious right now.
Lamont: ‘I think we’re making a difference’
“We’re doing everything we can to make Connecticut more affordable” and to get people back to work, Lamont said last week, adding he would like to offer even more tax cuts. But first, the state must get through the pandemic. “I think we’re making a difference.”
The governor and General Assembly last June adopted a two-year budget that spends $22.7 billion this fiscal year and appropriates another $23.6 billion starting this July 1.
The second year of that plan, which boosts General Fund spending by nearly 4%, has the full force of law, even though the governor and legislature traditionally view it as just a first draft — making adjustments before it takes effect.
In other words, officials don’t have to adopt a revised budget before the regular 2022 session closes in early May. If they do nothing, the $23.6 billion first-draft budget they approved last June for the 2022-23 fiscal year will go forward as is.
That plan already has momentum.
He and legislators increased grants to cities and towns by about $200 million this fiscal year and maintained that in the second year of the budget.
Although legislators last June approved Lamont’s highway truck mileage fee — which raises about $90 million annually to support the transportation system — there were no other major tax hikes in the two-year budget.
The state also already has made large-scale investments in nonprofit social service agencies and workforce development, though critics say both of these areas still need significantly more.
“The governor’s budget proposal [on Wednesday] will reflect what the state can afford and critical areas that need to be addressed in a timeframe of recovery,” said Lamont’s budget director, Office of Policy and Management Secretary Melissa McCaw. “While the state may be projecting a comparatively large surplus at this time, the FY23 budget still relies on federal supports for balance.”
Huge surplus doesn’t provide as many budget options as some expect
Analysts say state finances are projected to finish an unprecedented $2.5 billion in the black on June 30, a total that approaches 12% of the General Fund.
Of the nearly $6 billion in American Rescue Plan Act funds that Congress sent to Connecticut last year, about half went to state government — with the rest spread among local school districts and municipal and regional governments.
And of the $3 billion directly sent to state government, about $1.8 billion was used to support the biennial budget.
Analysts are projecting very modest deficits for state finances after that aid expires in 2024, but the Lamont administration has cautioned lawmakers to take a wait-and-see approach and assess how Connecticut’s economy responds before assuming the long-term budget outlook is stable.
“We are still working toward achieving the predictability and sustainability that accompanies true structural balance,” McCaw said.
That’s not the only issue tied to federal funding that has Lamont urging lawmakers to be conservative with state finances for now.
The federal government wants those ARPA dollars used to help states recover from the coronavirus — but not to finance major tax cuts. States are limited to tax relief that is no greater than 1% of existing General Fund tax revenue, McCaw said, adding that Connecticut that means total tax relief is capped at $250 million. That’s enough to offer some modest relief but nothing too sweeping.
Lamont has proposed increasing a state income tax credit that offsets a portion of middle-class households’ property tax bills from $200 to $300. He also wants to again make the credit available to households without children, which lost eligibility in 2018.
These changes alone would cost more than $120 million per year.
The governor also wants to freeze municipal property taxes for motor vehicles statewide at 29 mills, and to reimburse towns that currently impose a larger tax rate for the difference. [A mill raises $1 in taxes for every $1,000 of assessed property value.]
This would cost the state another $160 million per year. But because the proposed reimbursement to towns is an expenditure — and not a tax cut — from a state budgeting standpoint, it wouldn’t count against the 1% federal limit on state tax relief.
But there are other tax-cutting proposals that will be competing with the governor’s plan.
Senate Republicans called earlier this winter for an immediate, temporary rollback of the sales tax. The GOP wants to reduce the base rate for all of 2022 from 6.35% to 5.99% and also to suspend the 1% surcharge on restaurant food for the rest of the calendar year.
House Minority Leader Vincent J. Candelora, R-North Branford, said his caucus is developing a more aggressive tax-relief plan than the governor’s.
It would push the property tax credit back toward $500 — a level it hasn’t reached since 2011, and also would restore eligibility to households without kids.
And Rep. Sean Scanlon, D-Guilford, co-chairman of the legislature’s Finance Committee, has pledged to revive his 2021 proposal to create a new $600-per-child credit on the state income tax for low- and middle-income families.
Lamont will be pushed to spend more on health care, education
Legislators are likely to challenge Lamont’s latest budget plan this week in more ways than only how best to cut taxes.
Progressive Democrats in the House and Senate have bumped heads with the fiscally moderate-to-conservative governor since he took office in 2019, and many still assert Connecticut is not spending enough to help its schools, health care system and economy to recover from the pandemic.
The lean budget Lamont is expected to unveil on Wednesday likely will be challenged by legislators who want to channel more money into community colleges, nonprofit social services, nursing homes, affordable housing and support for the homeless.
The Appropriations Committee spearheaded that push, and Rep. Toni E. Walker, D-New Haven, longtime co-chairwoman, said lawmakers may well push the governor to spend some of Connecticut’s massive reserves once again.
The state has the legal maximum in its rainy day fund, $3.1 billion or 15% of annual operating expenses, and already made a supplemental $1.6 billion payment last fall to reduce pension debt.
But with a nearly $2.5 billion surplus projected for the current fiscal year, the state can keep its reserves full, reduce more pension debt and help do more for those hardest hit by the pandemic, Walker said.
The state needs to invest more immediately in its mental health programs, while shortages of nurses and doctors — particularly those willing to accept new Medicaid patients — is approaching a crisis as well, she said.
“We have to be a lot more vigilant to make sure that we are paying enough to a workforce that we desperately need to survive,” Walker said. “We are all experiencing the shortfall of doctors and nurses.”
Labor may force a showdown with Lamont
Labor leaders say Connecticut will be facing a shortage of staff in many areas if the state doesn’t do more to help workers in public and private sectors who manned the front lines during the worst of the coronavirus.
This includes police and fire personnel, prison guards and teachers, health care workers, social workers and others who could not perform their jobs remotely.
“You might be holding our future in your hands right now. But come Election Day, your future will be in our hands,” said Cynthia Johnson, a home health aid from New Haven, as she protested at Lamont’s Greenwich home on a chilly morning in December.
Johnson and dozens of her colleagues from New England Health Care Employees Union, District 1199 SEIU were rallying for more state funding to enable better pay and benefits.
Though many health care workers in nursing homes, nonprofit social service agencies and home care services are technically private-sector employees, the companies that hire them get the bulk of their funding from government sources. And labor leaders say too many earn little more than minimum wage, living lives of poverty.
“Where’s our Thanksgiving and Christmas?” asked Johnson, who wore a Grinch hat while dozens of fellow protestors chanted “Fix the broken system” and “Shame on you.”
District 1199 made that argument repeatedly last year, winning raises and better benefits for group and nursing home workers — but also warning that the problem is far from fixed. More importantly, labor advocates add, the problem can’t wait for two more years to see how well Connecticut’s economy rebounds from the pandemic.
But administration officials say Connecticut has made real progress helping its frontline workers and that government can’t afford to assume all of its financial challenges are over.
“We must not presume COVID-19 is a thing of the past, and we cannot plan on this business cycle lasting forever,” she said. “When it comes to managing the finances of this state we must remain prudent, realistic, and strategic in our efforts to reduce the burden on our taxpayers while also balancing the budget.”