Gov. Ned Lamont and legislative leaders have agreed on a new $24 billion state budget that features nearly $600 million in tax cuts, including up to $750 later this year for families with kids, and an extended gasoline tax holiday running through Dec. 1.
The compromise budget for the fiscal year that begins July 1 also freezes car taxes in nearly half of all communities and makes new investments in child care, mental health, other social services and the state’s contracting watchdog agency.
But while the governor and his fellow Democrats in the legislature’s majority touted the tax cuts levels as historic, more than half of the nearly $600 million in tax relief in the plan is guaranteed for just one year.
“We’ve got a budget on time with significant tax cuts and investments in important social programs,” Lamont said during a midday press conference with legislative leaders. “I think you see a budget that’s going to take care of folks most in need.”
“I think there’s a great deal to celebrate here,” said Senate President Pro Tem Martin M. Looney, D-New Haven, who noted that lawmakers spent much of the 2010s having to make tough budget cuts as the state struggled with deficits. But now, with the state enjoying historic budget surpluses, “We were actually excited about this process, not dreading it.”
Package features nearly $600 million in tax cuts
With state government flush with cash, enjoying more than $7 billion in current and projected budget reserves, Democrats placed a heavy focus on tax relief.
The package included a $250 per child credit, up to three children, for individual filers earning up to $100,000 and for couples making up to $200,000. Poor households with no income tax liability still could get up to 70% of the credit refunded to them. The entire program would return an estimated $125 million to poor and middle-class families.
A source said lawmakers are exploring options to send some or all of this funding to eligible families later this year, rather than making them wait to file state income tax returns next spring.
While state government’s reserves are flush, skyrocketing inflation and more than two years of the coronavirus pandemic have taken a huge toll on Connecticut households, said Rep. Sean Scanlon, D-Guilford, co-chairman of the Finance Committee and leader of the effort to create a child tax credit.
Because of the state’s robust budget reserves, “We have the ability to say, ‘We hear you, Connecticut,’” Scanlon said. “And this package delivers on that.”
Nearly another $125 million in income tax cuts would go to the middle class by expanding the property tax credit from $200 to $300 and by restoring eligibility to households without children or seniors, who lost their ability to claim the credit in 2018.
Lamont, who spearheaded the push for the property tax credit expansion, also won a victory when it comes to municipal taxes on non-commercial vehicles.
The new budget lowers the statewide cap on the car tax from 45 mills to 32.46 mills. One mill raises $1 for every $1,000 of assessed property.
Only a handful of communities currently tax vehicles in excess of 45 mills, but legislators said the new cap would provide total relief of about $100 million — spread across 75 of the state’s 169 cities and towns. The state would send $100 million to affected towns to replace the revenue they could not collect.
Lamont and legislators from both parties agreed earlier this spring to suspend the 25-cents-per-gallon retail tax on gasoline from April through June. This new budget would push the tax holiday through Dec. 1, saving motorists an extra $150 million.
Other tax cuts in the package include:
• Boosting the state’s Earned Income Tax Credit for the 2022 tax year from 30% to 41.5% of the federal EITC. This would provide about $42 million in total relief, or roughly an extra $300 each to about 185,000 working poor households earning less than $58,000.
• Exempting all pension and annuity earnings from the income tax would save filers $40 million per year.
• And a new income tax credit to help college students with loan debt would cost the state $10 million.
Lawmakers also are considering using a portion of more than $400 million in unallocated federal pandemic relief to help reduce a $495 million debt in the state’s unemployment trust but said no decision has been reached on this item yet. Whatever debt the state does not cover must be paid off by Connecticut businesses, which will face additional assessments beginning this fall.
But while Lamont and Democratic lawmakers touted the total relief, they didn’t spend as much time noting more than half of the total tax relief, more than $315 million, is guaranteed for one year only.
The child tax credit, the EITC expansion and the gas tax holiday all are temporary.
Scanlon, who pushed hard for a permanent child tax credit, said he’s optimistic the program will be popular and that it would be hard from lawmakers not to maintain it in the future.
“I think this policy is transformational for families and kids in Connecticut, and I think it’s going to mean a lot to the parents of the 600,000 children” projected to benefit from the program, he said, adding that the child credit within the federal income tax already has a proven track record of lifting kids out of poverty.
Republican legislators also have proposed some one-time relief, but House Minority Leader Vincent J. Candelora also noted the GOP went much deeper in terms of long-term tax cuts. Proposals included the first state income-tax rate reduction since the mid-1990s, adjusting rates annually to protect households from inflation, boosting the property tax credit to $500 and creating a new tax credit for renters.
“We also want to see some systemic change,” Candelora said, adding that immediate relief for Connecticut households is important, but it needs to continue after this year to help families thrive.
“A lot of these one-time giveaways don’t necessarily spur that economic recovery.”
“The state is overtaxing its residents. Connecticut Democrats want to keep the money. That’s not right,” said Senate Minority Leader Kevin Kelly, R-Stratford “Connecticut Democrats have the power to fix the financial burden facing our families. I am disappointed and underwhelmed by the delayed and limited tax relief.”
New investments in child development and social services
But House Speaker Matt Ritter, D-Hartford, noted this budget is not just about tax cuts. State government must be ready to function in 2024 without the $3 billion in federal pandemic relief it’s enjoyed over the past year, and lawmakers intend to maintain important investments being made in this new budget in health care and social programs.
“To me, this is about investing responsibly,” Ritter said. “We’re not sacrificing fiscal discipline while we make these investments.”
Legislators and Lamont said the new budget would make a major new investment in child care and in early childhood development programs.
And while they didn’t discuss specific numbers, sources said the package would include about $80 million in the General Fund, complemented by another $45 million drawn from this year’s surplus and unallocated federal pandemic relief.
State officials have expressed concern since the pandemic began about the need to bolster job training and help more households find employment. But Rep. Toni E. Walker, D-New Haven, longtime co-chairwoman of the Appropriations Committee, said that until the state addresses a child care industry that has been rocked by the coronavirus, job growth will struggle.
“If you don’t have committed dollars for day care, you can’t work,” she said.
The private, nonprofit community agencies that provide the bulk of state-sponsored social services also won a victory.
The new budget includes $72 million — including $52 million in state funds and $20 million in federal pandemic relief — to support the agencies, who serve clients with developmental disabilities, patients with mental illness and behavioral disorders, and those suffering from addiction.
The package also carries forward roughly $20 million from this fiscal year’s historic, projected $4 billion surplus to help the industry, which argues state payments have failed to keep pace with inflation for more than 15 years, leaving many providers at financial risk and facing a serious staffing shortage.
Contracting watchdog wins big with a little funding
Legislators also rejected Lamont’s proposal to expand staffing for the state auditors’ office in lieu of fully staffing the State Contracting Standards Board. Instead, the final budget proposal includes the $454,000 the contracting board sought to fill five positions and gives it a full-time investigative staff for the first time in its 15-year history.
Created in 2007, the board technically is empowered to review Executive Branch agencies’ contracting processes to ensure they were transparent, cost-efficient and in compliance with the law. It also has authority to suspend any procurement effort deemed improper. The auditors have no enforcement powers.
But governors and legislatures never have provided the board with the funding necessary to hire an investigative staff.
Sen. Cathy Osten, D-Sprague, the other co-chairwoman of the Appropriations Committee and a longtime advocate of fully funding the contracting watchdog, said Wednesday that new spending equal to a tiny fraction of a $24.2 billion budget still has great value.
“We funded small things that make a big difference to the residents of the state of Connecticut” in this budget, she added.