Rep. Sean Scanlon, D-Guilford hopes to create a new income tax credit for CT households with kids Thomas Breen / New Haven Independent

The legislature’s Finance Committee took the first step Tuesday toward creating a new state income tax credit for low and middle income families with children.

The Democrat-controlled panel technically endorsed a bill that would immediately create a new $600-per-child credit. But Rep. Sean Scanlon, the committee’s co-chair, quickly qualified that the proposal will be revised Wednesday to comply with federal restrictions on how much tax relief Connecticut can offer while it accepts emergency federal pandemic aid.

Scanlon is expected to announce Wednesday that the credit will be phased in starting two years from now, once the federal relief has expired.

The finance panel, which faces a 5 p.m. Thursday deadline to finish proposing bills for the 2022 legislative session, also endorsed a new income tax cut for Connecticut’s working poor families. This relief amounts to an average of about $300 extra for more than 185,000 families earning less than $58,000 per year.

The child tax credit Scanlon has been fighting for since last year “is more than an aspiration,” the Guilford Democrat said during Wednesday’s meeting. “It will be a reality.”

Committees often adopt bills that members know are likely to be modified or even rejected.

But Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance panel, said she didn’t want to dangle relief in front of Connecticut residents and then not deliver.

“At the end of the day, the only thing that matters to the residents of Connecticut is can we make this happen?” said Cheeseman, who voted for the measure. “I, too, aspire to do great things. Let’s make this work.”

The bill, which passed by a 2-1 margin with bipartisan support, still faces challenges in its current form because of U.S. Treasury rules governing states that accepted federal pandemic relief through the American Rescue Plan Act.

State government here got $3 billion in ARPA funds and billions more went to Connecticut municipalities and school districts.

States are supposed to use those funds to restore services hurt by the pandemic, not cut taxes. Gov. Ned Lamont’s administration said it believes the state cannot cut General Fund tax receipts next fiscal year by more $200 million without running afoul of the treasury rules.

“You can’t do everything,” the governor said Tuesday, adding lawmakers will have to make some tough choices.

Lamont is insisting that the legislature cut income taxes for the middle class this year in a different fashion — by expanding from $200 to $300 a credit that offsets a portion of municipal property tax bills. The governor needs to do this to fulfill a promise he made in his 2018 campaign for office.

This relief would cost about $120 million per year, and the tax break for the working poor — which leaders of the House and Senate’s Democratic majority vowed would be adopted this year — costs another $42 million.

The doesn’t leave much room for the child tax credit, which would return $300 million annually to taxpayers.

Scanlon didn’t provide details Tuesday, but he has said on several occasions the relief could be set to start a year or two down the road, after the pandemic aid expires.

The finance panel is expected to be asked Wednesday to adopt a broader tax plan that includes Lamont’s promised relief, the tax break for the working poor, and a child tax credit that would begin at $300 per child in 2024, and then grow in future years.

To help pay for it, and to support a second big initiative, the committee is recommending that Connecticut slow down, modestly, the big budget surpluses it has been racking up in recent years.

Sen. John Fonfara, D-Hartford, the committee’s other co-chairman, proposed that Connecticut suspend its “revenue cap.”

Designed to stop legislators from creating budgets with no room for error, this cap was created in 2017 and says appropriations cannot exceed 99% of projected revenues this fiscal year. That’s a built-in cushion of $275 million.

By 2024 the revenue cap would reach 98.5%, and would create a cushion of $321 million.

About half of those funds would be used to support the child tax credit two years from now.

The other half would be dedicated to early childhood development, something Fonfara says is vital to reduce the education achievement gap and foster greater economic opportunity in poor urban centers.

“Too many children are denied those opportunities that most of Connecticut enjoy, great opportunities,” he said.

“If we don’t invest in these children,” added Sen. Patricia “Billie” Miller, D-Stamford, “our schools are going to be a pipeline to prisons.”

Fonfara also noted a second, larger savings program for the state budget — also created in 2017 — would remain in place.

Labeled the “volatility adjustment,” it prohibits the legislature from spending a portion of state income tax receipts tied to capital gains and other investment earnings.

The volatility adjustment has never allowed the state to save less than $500 million since its creation, and this year likely will build a cushion that tops $1 billion.

But while the Finance Committee endorsed suspension of the revenue cap Tuesday, moderate Democrats and Republicans said they will fight to keep that provision out of the next state budget.

“I am very much supportive of our state’s most precious commodity,” said Rep. Kerry Wood, R-Rocky Hill. But, she added, Connecticut must do it without violating a cap that has helped end years of deficits, build a healthy reserve and accelerate reduction of pension debt

In other business Tuesday, the Finance Committee also approved bills that would:

  • Require the Capital Region Development Authority to study the possible redevelopment of the Brainard Airport property in Hartford.
  • Make heating, air conditioning and other air quality control projects in municipal schools eligible for assistance through the state’s school construction grant program.
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Keith M. PhaneufState Budget Reporter

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.