Legislators and lobbyists in the Connecticut state Capitol on Jan. 4, 2023, the first day of the legislative session. Stephen Busemeyer / CT Mirror

With final state budget negotiations set to begin this week, Gov. Ned Lamont and the legislature were pressed on multiple fronts to boost funding for core services and reform a tax system that many say hammers the poor and middle class.

A massive coalition — consisting of nonprofit social service agencies, nursing homes, cities and towns, advocates for education and early childhood development, progressive policy groups and Child Advocate Sarah Eagan — promised to defend legislators willing to work around the spending cap to protect key services.

In a separate announcement, a veteran Hamden lawmaker announced the formation of a new Tax Equity Caucus, backed by nearly three dozen representatives committed to redistributing state and municipal tax burdens.

“We know that finding ways to fund so many needs will not be easy,” the coalition wrote in an open letter sent midday Monday to state officials. “It will require difficult choices.”

“We know that some of those choices may be unpopular,” the letter continued. “The organizations listed below will stand shoulder-to-shoulder with you when you make tough decisions and do whatever is necessary to fund programs our residents need.  We will speak individually and collectively to the public to explain why investment today in the women, men and children of our state will benefit Connecticut in the future.”

Social service agencies continue to press for funding

One of the key organizers of that letter was the CT Community Nonprofit Alliance, which represents more than 300 private community agencies that deliver the bulk of state-sponsored social services.

And while that industry says state payments are down $480 million annually since 2007 once adjusted for inflation, its president and CEO, Gian-Carl Casa, said nonprofits are far from the only ones frustrated by the spending plan recommended last month for the next two fiscal years by the legislature’s Appropriations Committee.

“There’s a broad recognition that the [committee] budget doesn’t work in a lot of areas,” Casa said.

Municipalities and education advocates are frustrated that the committee budget maintains a steady growth program for education grants to local schools but scraps a proposal to considerably accelerate grant growth.

It also would cancel nearly $64 million in inflationary rate adjustments otherwise due to nursing homes over the next two fiscal years, something Matthew Barrett, president and CEO of the Connecticut Association of Health Care Facilities, has called a “significant setback” for an industry still recovering from the pandemic and from last summer’s 40-year high in inflation.

Increases for early childhood development have also been criticized as too modest given the economic pain that industry has suffered since 2020.

Lisa Tepper Bates, president and CEO of the United Way of Connecticut, noted Monday that inquiries through the 2-1-1 info line for help with basic needs — food, housing, shelter and employment — are up 25% this year, while calls regarding mental health and addiction support have grown 50%.

“We know that, too often, the resources we are referring people to are simply maxed out,” Bates said. “And, again, we are talking about essential, life-saving services — not ‘nice-to-do’s. We are very concerned about the social services infrastructure in our state, given what we are seeing every day in the way of growing need.”

While critical of the committee budget, advocacy groups were careful not to chastise the Appropriations Committee itself. The budget panel’s leaders warned well in advance that despite a huge projected state surplus — more than $3 billion this fiscal year — complications involving the spending cap were tying the panel’s hands.

House Speaker Matt Ritter, D-Hartford, and Senate President Pro Tem Martin M. Looney, D-New Haven, issued a joint statement in late April calling for lawmakers and Lamont to work together to find ways to channel more resources into core services.

Ritter praised the social services coalition Monday for agreeing to support state officials who make tough decisions to preserve core programs. 

“There are shortcomings in the [committee] budget that we need to address,” he said. “That’s what I’ve been saying for the last 10 days.”

Lamont, whose budget proposal for the next two fiscal years was even leaner than that of the Appropriations Committee, has pushed back, saying legislators need to stay within the fiscal guardrails they adopted and prioritize their needs.

The governor said the spending and borrowing controls adopted in 2017, coupled with an aggressive savings program that limits the state’s ability to spend quarterly income and business tax receipts, has been very successful. 

It’s filled the rainy day fund to its legal maximum at $3.3 billion and allowed for another $5.8 billion in supplemental payments against pension debt.

But despite those gains, Connecticut has about $88 billion in unfunded retirement benefit obligations and bonded debt, making it one of the most indebted states, per capita, in the nation.

New caucus seeks to promote tax fairness

Another challenge for those seeking to spend more over the next budget cycle on core services involves a bipartisan push, involving both legislators and Lamont, to cut state income taxes in the next budget.

While all sides seem to agree some reductions are in order, the scope of the cut — including which income brackets would benefit — remains uncertain. And if too much revenue is cut, that also could make it harder to fund core services in future years if the economy falters.

Many progressive Democrats in the legislature have argued for increasing income and other taxes on Connecticut’s wealthiest households and on major corporations.

They say this would ensure new investments in education, social services and health care wouldn’t have to be pared back in a year or two if the nation falls into recession.

But Rep. Josh Elliott, D-Hamden, said a new caucus formed this spring, involving nearly one-quarter of the House of Representatives — 35 out of 151 members — sees things somewhat differently.

The new tax equity caucus hopes to begin building support immediately to overhaul the state and municipal tax system — regardless of whether the overall tax burden is being reduced.

In other words, even if the state needs to collect the same $22 billion in tax revenue next year that it has this year, some should be paying more and others should be paying less, the caucus believes.

“We overtax our under-privileged,” Elliott said. “We allow our wealthiest to go on paying almost a quarter of what our most vulnerable pay — and we are the most reliant on the property tax in this state compared to almost every other state in the country.”

The last tax incidence analysis, released by the state Department of Revenue Services in February 2022, found that households in the lowest income decile — making less than $44,758 in 2019 — effectively lost nearly 26% of their earnings to state and municipal taxes, nearly four times the rate paid by Connecticut’s wealthiest families, according to the study. Those making between $44,758 and $74,688 paid nearly three times that of those at the top.

Elliott, who joined the legislature seven years ago, was instrumental shortly after his arrival in the formation of the House Democratic Progressive Caucus. And while many in that group — which boasted more than 40 members two years ago but has shrunk since then — supported a more progressive tax system, over time the focus on tax fairness took a secondary role.

Lamont, a wealthy Greenwich businessman, has consistently opposed financing tax breaks for the poor and middle class by raising taxes on the rich, arguing it would prompt the latter group to flee Connecticut.

Elliott said that while the new tax equity caucus will fight to redistribute tax burdens now, it also recognizes this could be a multi-year battle and will look to increase awareness about tax inequity.

Ritter said Monday he welcomes the new caucus. The legislature already has several caucuses focused on specific issues such as animal rights and services for people with intellectual disabilities. 

“I welcome all kinds of caucuses,” Ritter said, adding that the key for all groups is to work toward compromise and finding common ground.

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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.