With the General Assembly’s tax-cutting debate poised to shift into high gear next week, Republican leaders pressed Gov. Ned Lamont on Friday to challenge U.S. treasury rules that limit how much relief Connecticut officials can dole out this year.
The GOP minorities in the House and Senate specifically want the Democratic governor to align Connecticut with more than a dozen Republican-led states in a legal battle to overturn tax-cutting limits tied to federal pandemic relief.
And with Connecticut state government sitting on unprecedented budget reserves and surplus projections despite rampant inflation, Republicans here say Democrats can’t be shy about challenging President Joe Biden’s administration.
“Rampant inflation and over-taxation have created record state surpluses for the 2022 and 2023 fiscal years,” wrote Rep. Vincent J. Candelora of North Branford and Sens. Kevin Kelly of Stratford and Paul Formica of East Lyme, top GOP leaders in both chambers, in a letter to Lamont and Attorney General William Tong on Friday. “Yet many families in our state continue to struggle as the K shaped recovery from the COVID-19 pandemic has left working and middle class families behind.”
The legislature’s Finance, Revenue and Bonding Committee is scheduled to vote next week on a series of tax-cutting proposals. The group is weighing numerous options to cut state income, sales and other taxes. But Lamont has warned repeatedly that many of them simply can’t take effect this year.
That’s because Connecticut received more than $6 billion in federal pandemic relief last year through the American Rescue Plan Act. About $3 billion went directly to state government, with the rest divided among school districts, municipal governments and regional entities.
Congress has stipulated those funds must be used to help states recover from the pandemic, and the U.S. Treasury issued guidelines last year restricting how much could be used to finance tax cuts.
Lamont administration officials have said Connecticut likely couldn’t order more than $200 million in General Fund tax cuts next fiscal year without running afoul of federal rules.
A federal judge in Alabama blocked President Biden’s administration from enforcing these rules, though the legal struggle continues. That ruling applied to 13 Republican-led states: Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, Utah and West Virginia.
But for Lamont and Tong, both Democrats, to challenge a Democratic president, is something very different.
Still, Candelora says Lamont, who is seeking re-election, should take the step.
Lamont and lawmakers from both parties unanimously agreed last week to suspend the state’s 25-cents-per-gallon retail tax on gasoline from April through June.
Officials hope this move, coupled with three months of free public bus transit and a sales-tax-free week on clothing in mid-April, will save consumers about $100 million.
But Republican leaders here wrote “there is much more that can be done by way of tax relief to help the overburdened citizens of this state.”
While Connecticut households are reeling from high gasoline prices and a 2021 calendar year that saw inflation nationally top 7.1%, the state’s short-term fiscal position is awash in cash.
The rainy day fund holds $3.1 billion or 15% of annual operating expenses, the legal maximum.
Perhaps even more surprising, there’s a good chance the state will produce — in one year — a budget surplus that matches or exceeds this maximum reserve.
Analysts are projecting this fiscal year will close on June 30 with more than $2.7 billion in additional black ink, and Lamont and lawmakers have expressed optimism that unprecedented projection will get rosier when the next revenue forecast is released on April 30.
The governor recently negotiated new wage contracts with more than 30 state bargaining units that grant 43,000 workers $3,500 in bonuses this spring and summer, in addition to a 2.5% general wage increase, as well as step raises.
How can Connecticut potentially award workers $150 million in bonuses and not fight to provide more tax relief for residents? Candelora asked.
“I think it’s going to be a difficult message for them to dodge,” he added.
But while Republicans say Lamont is using the state’s flush coffers to buy labor votes, the administration counters the bonuses and raises are vital to ensure an ongoing surge in veteran state employee retirements doesn’t get out of hand.
“Our state has incredibly talented professionals across our agencies with invaluable institutional knowledge in areas of public safety, health care, child care and other roles which can be supported by technology but can’t be replaced by it,” Max Reiss, Lamont’s communications director, said when tentative contract agreements were reached on March 9.
Neither Lamont’s nor Tong’s office commented Friday after House and Senate Republican leaders sent their letter.
Meanwhile, Republican legislators aren’t the only ones in Connecticut who’ve questioned these restrictions.
Rep. Sean Scanlon, D-Guilford, co-chairman of the Finance Committee, hasn’t called for Connecticut to go to court but has asked nonpartisan staff to research the legality of the limits.