The Senate gave final passage to a budget the features more than $600 million in tax relief.
The Senate gave final approval Tuesday to a $24.2 billion state budget that provides more than $600 million in gasoline, income and property tax relief while expanding investments in health care, social services and early childhood development.
The Democratic-controlled Senate voted 24-12, largely along party lines, to adopt the package, which now heads to Gov. Ned Lamont, who is expected to sign it. The House of Representatives, where Democrats also hold the majority, approved the budget 95-62 early Tuesday morning.
The budget, which boosts General Fund spending starting July 1 by 6.5% above current levels, provides big raises and bonuses for unionized state employees but a very modest allocation for nursing home, grocery store and other private-sector workers who staffed vital services during the worst of the coronavirus pandemic.
Legislators tapped one-quarter of this fiscal year’s historic and unprecedented $4.8 billions surplus to ensure state finances stay in balance in future years when emergency federal pandemic relief has been exhausted. But the rest of the surplus, nearly $3.6 billion, will be used to make a record-setting supplemental payment against Connecticut’s $41 billion in long-term pension debt.
“The people of Connecticut want and expect us to make decisions that are good for today but also for their children and grandchildren tomorrow,” said Sen. John Fonfara, D-Hartford, co-chairman of the Finance Committee.
The new budget strikes an important balance, Fonfara said, offering one of the largest tax-cut packages in state history while taking a big chunk out of Connecticut’s long-term debt — and still leaves the state with more than $3 billion in budget reserves to guard against the next recession.
“I consider this budget to be a human services budget,” said Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee. She said it expands programs that meet needs most exacerbated by the coronavirus.
“This is a humane budget, a responsive budget,” said Senate President Pro Tem Martin M. Looney, D-New Haven. “It meets the needs and wishes and aspirations of the people of the state of Connecticut and especially looks at the needs of those who look to us to help them.”
A historic tax cut, or a meager share of the government’s windfall?
But Senate Republicans countered that Democrats were boosting spending way too much and going way too easy on the tax relief.
Minority Leader Kevin Kelly, R-Stratford, wasn’t impressed with the more than $600 million in relief the budget provides, cuts that Lamont earlier this week called “shining lights for this state.”
Why not? “Because there’s been a historic over-collection of taxes to the tune of at least $4.8 billion,” Kelly said, referring to the projected surplus for the current fiscal year, a cushion that represents 23% of the entire General Fund.
The single-largest tax cut in the budget involves extending the gasoline tax holiday that Lamont and lawmakers from both parties endorsed earlier this spring. The state suspended the 25-cents-per-gallon retail fuel tax from April 1 through June 30, and the new budget extends it until Dec. 1.
Another temporary measure effectively creates a new $250-per-child credit against the state income tax for low- and middle-income households, up to a maximum of $750. This would send $125 million to single filers with earnings less than $100,000 per year and couples making less than $200,000.
Most of the ongoing relief is centered on property taxes.
The budget would lower the cap on municipal taxes on non-commercial passenger vehicles from 45 mills to 32.46 mills. This would affect 75 communities with higher tax rates. The state also would send $100 million annually to towns to offset the funds communities would lose due to the cap.
The package also includes the state income tax credit that offsets a portion of middle-income filers’ property tax bills from $200 to $300. This increase, coupled with another change — restoring eligibility to households without kids or seniors — would save filers about $123 million per year.
Other tax cuts in the plan include:
• Increasing the income tax credit for working poor households from 30% to 41.5% of the federal Earned Income Tax Credit. That’s worth about $42 million, or about $300 per household for those making less than about $58,000 per year;
• Depositing $40 million into the state’s unemployment insurance trust, which is $493 million in debt. Businesses face a big assessment increase starting this fall to replenish the fund;
• Exempting pension and annuity earnings from the income tax;
• Creating a new income tax credit to help filers cover student loans;
• Repealing taxes on ambulatory surgical centers and movie tickets.
Fonfara labeled the tax-cutting plan and the budget in general as “prudent, responsible and balanced,” reminding lawmakers that government should not promise more tax relief than it can afford given the economic uncertainty caused by the pandemic.
“I’ll tell you what is unaffordable: Living in Connecticut,” Kelly countered. “Ask your constituents.”
“I believe that middle class families will continue to hurt in this state,” added Sen. Ryan Fazio, R-Greenwich.
Citing an 8.5% national inflation rate, Republicans tried to amend the package to effectively double the tax relief to about $1.2 billion.
The GOP proposal kept most elements of the Democratic budget but also would have lowered an income tax rate that hits most middle class households.
It also would have temporarily reduced the sales tax, suspended a 1% surcharge on restaurant meals, repealed a highway use fee on large commercial trucks, deposited $225 million in the unemployment trust and extended the gasoline tax holiday one more month, through Dec. 31.
The Republican tax plan failed on a party-line vote.
Helping Connecticut to recover from the pandemic
But while the planned tax cuts have dominated headlines in recent weeks, Senate Democrats said the budget does much more to help the state recover from the coronavirus.
It invests more than $100 million to help reverse what Sen. Saud Anwar, D-South Windsor, called the “child care disaster.” Child care and early childhood development programs were financially devastated over the past two years, and legislators have said that unless this is reversed, many families with kids will be unable to get parents back to work.
The private nonprofit community agencies that provide the bulk of state-sponsored social services received a roughly 5% increase in funding.
Lawmakers included more than $90 million to support the agencies serving clients with developmental disabilities, mental illness and behavioral disorders, and those suffering from addiction.
The budget also would expand a new program opening Medicaid eligibility to undocumented children age 12 and younger. Once enrolled, those children would remain eligible for Medicaid coverage until age 19. Children older than 12 who seek enrollment would not be covered.
Aid to cities and towns largely remains flat in the new budget, though a previously approved $40 million increase in the Education Cost Sharing program, the state’s primary grant to local school districts, remains in effect.
The budget also includes about $450,000 to allow the State Contracting Standards Board to hire new employees and give it its first investigative staff in its 15-year history.
“This budget will make the lives of the people of the state of Connecticut much better,” added Senate Majority Leader Bob Duff, D-Norwalk.
But not all Democrats were pleased with the budget.
Sen. Dennis Bradley of Bridgeport, the lone Democrat to vote against the budget, chastised Lamont, a Greenwich businessman and fiscal moderate, for not proposing more to help Connecticut’s poor urban centers.
“I really take issue with what our leadership has done in terms of our Executive Branch,” said Bradley, who questioned whether Lamont has a plan to ensure “that blue-collar folks have a shot at the American Dream — and not by giving a handout but by giving a hand up. And I don’t hear that in this budget.”
Lamont wrote in a statement after the Senate vote: “Tonight, the General Assembly voted to give taxpayers their largest tax cut in history, while paying down $3.5 billion in unfunded liabilities, making groundbreaking investments in childcare, crime prevention, environment protection, and caring for our most vulnerable residents. We are transforming Connecticut, making it a place where people and businesses want to grow and set down roots.”
Sens. Kevin Witkos of Canton and Heather Somers of Groton were the only Republicans to vote for the budget.
Raises for state employees, modest funding for ‘hero pay’
The budget includes $374 million next fiscal year for a controversial package of raises and bonuses for about 46,000 unionized state employees.
The legislature recently ratified four-year contracts that include a 2.5% annual cost-of-living hike and a step increase for this fiscal year and each of the next two. The state and unions have the option to extend the raises for a fourth year in 2024-25 or renegotiate wages.
State employees also will receive $3,500 in bonuses between mid-May and mid-July.
The budget also includes $30 million to provide what labor advocates have begun calling “hero pay.”
These are special payments to private-sector workers in grocery and department stores, pharmacies, nursing homes and hospitals, utilities and other private-sector businesses that kept vital services running during the worst of the COVID-19 outbreak in 2020.
The $30 million is 1/25th of the $750 million the legislature’s Labor and Public Employees Committee recommended and which labor advocacy groups like the Connecticut AFL-CIO endorsed.
That panel estimated $750 million would be enough to provide all full-time, front-line workers, among the public and private sectors, with $2,000 each, and part-timers with $1,000.
Legislators have said it’s unclear how much “hero pay” individual recipients will get, noting it would be divided among all qualified applicants.