The Republican minority in the state House of Representatives proposed a $27.9 billion budget Tuesday that would deliver $420 million in yearly tax and fee relief while boosting aid to local schools by more than $335 million and trying to counter rising insurance premiums.

But the GOP plan relies on shifting hundreds of millions of dollars in payments to hospitals outside the spending cap and on Connecticut winning a legal battle against New York over work-from-home-related income tax receipts. It also would remove undocumented residents from state-funded health insurance programs and delay hiring for many state agencies.

Republicans hope Gov. Ned Lamont and his fellow Democrats in House and Senate majorities will incorporate elements of their plan in the final budget for the 2026-27 fiscal year, which is under negotiation and which leaders hope to adopt before the regular General Assembly session closes May 6.

“Our plan keeps us under the spending cap and puts real money back in people’s pockets, whether through their property tax bills or their insurance premiums,” said House Minority Leader Vincent J. Candelora of North Branford.

Republicans weren’t interested in Lamont’s proposed tax rebate, which would divide $500 million among most residents — $200 per person in most cases — once in late October.

Republicans have called the Democratic governor’s proposal a political stunt, noting the rebate would be delivered days before voters must decide whether to reelect Lamont to a third term.

“We’re not talking about a handout because we’re running in November,” Rep. Joe Polletta of Watertown, ranking House Republican on the Finance, Revenue and Bonding Committee, said during a mid-morning press conference, adding that residents need lasting relief to combat Connecticut’s high cost of living. “We’re talking about something that people can look to two, three, four, five, 10 years down the line,” he said.

Relief plan is centered on CT income tax

The linchpin of the House GOP relief plan is a $285 million state income tax cut aimed at Connecticut’s middle class.

Republicans would increase an existing credit that offsets a portion of municipal property tax bills from $300 to $650 and broaden eligibility. Individuals earning more than $49,500 and couples topping $70,500 can receive a partial credit at most, while those exceeding $109,500 and $130,500 are ineligible for any relief, according to current law.

The House GOP plan would begin phasing down the credit once earnings for individuals surpass $70,000 and couples top $100,000 and would not cut off eligibility until their incomes exceed $130,000 and $200,000, respectively.

The caucus also would deliver another $82 million in annual relief by creating a new exemption for tips earnings and expanding the state’s partial tax exemption on Social Security income to a full exclusion.

Other components of the House Republican relief package include:

• Raising the sales price from $50,000 to $75,000 for vehicles subject to Connecticut’s luxury sales tax rate, which is 7.75% rather than the base rate of 6.35%. This would save consumers about $20 million per year, according to the caucus.

• Exempting children’s clothing from the sales tax, which would save shoppers about $15 million annually.

• And eliminating fees of certain occupational licenses, which would save applicants about $16 million.

“Republicans are the only ones offering significant and permanent tax relief,” Senate Republican Leader Stephen Harding of Brookfield said after his House colleagues released their plan. “Our ideas can save working families thousands of dollars a year, every year.”

To afford this tax relief, the House GOP plan needs Connecticut to reclaim about $340 million per year in state income tax payments that residents here currently make to New York.

The Empire State demands income tax from Connecticut residents who work remotely from home for New York-based employers. Growing technology coupled with the coronavirus pandemic outbreak in 2020 led to a huge explosion in remote work, and New York officials have said it’s unfair for the state that supports so many large employers, and so many jobs, to lose the tax revenue.

Connecticut offers a credit so an estimated 80,000 of its residents in this situation don’t have to pay taxes to two states.

House Republicans want to repeal that credit, forcing a legal showdown in federal court. But some state officials say that could ultimately go to the U.S. Supreme Court and take years to resolve.

Candelora acknowledged there could be delays and there’s no guarantee the state could recoup the full $340 million. But the state has $4.3 billion in its rainy day fund, which could cover any budget caps while the legal battle plays out, the minority leader said, adding Connecticut must try to force a resolution.

But Lamont’s budget spokesman, Chris Collibee, said the GOP plan “relies on unrealistic revenue assumptions and savings estimates. Simply put, it does not present a truly balanced budget. … The Lamont administration remains committed to working with legislative leaders to develop responsible budget adjustments that deliver meaningful relief to residents, schools and municipalities while continuing to protect our most vulnerable populations.

Boosting aid to cities and towns

But House Republicans said their plan to improve affordability doesn’t hinge solely on state taxes.

Their budget also would boost education aid to cities and towns by $365 million per year, which would ease burdens on local property taxpayers to support their schools.

“Connecticut is underfunding education, using a fatally flawed formula, which has not kept up with what it actually costs to educate a child, and towns are left making up the difference,” said Rep. Tammy Nuccio of Tolland, ranking House Republican on the Appropriations Committee.

To help pay for this $365 million increase, though, the House Republican budget would cut the Education Cost Sharing grant program modestly, by about $29 million. Nuccio said the budget would reduce payments to communities that host magnet, vocational-agriculture and charter schools. In some cases, these cities and towns effectively receive a double payment per student, as if the child were attending both a traditional school and a specialty school at the same time, she said.

House Republicans also would help pay for more aid to schools by reducing planned spending for “earmarks” — pet projects in legislators’ home districts —  by $12 million and by removing undocumented residents from state-funded health insurance programs to save $61 million.

Democratic legislative leaders have pledged to increase school aid by $150 million or more next fiscal year.

“It is good to see that we are on a similar page with our House Republican colleagues in sending more money to local schools and addressing the affordability crisis, which continues to be exacerbated by President [Donald] Trump,” House Speaker Matt Ritter, D-Hartford, said Tuesday afternoon. “I’m sure I will have a number of productive conversations in the coming weeks with Rep. Candelora and his budget team.”

But Nuccio noted Democrats have been drawing the extra funds for schools from reserves outside of the formal budget and haven’t demonstrated how they would continue that aid year after year.

Republicans also hope to stem rising premiums by moving about $20 million from the state budget’s Insurance Fund — which is supported with an assessment on insurance companies and health care centers — to the General Fund, which receives most state tax and fee receipts.

Republicans would work around spending cap, delay hiring

Republicans, though, have their own challenges making the math work.

The House GOP budget would spend about $800 million less than what Lamont proposed for the fiscal year that begins July 1 and almost $1.1 billion less than what the Democratic-controlled Appropriations Committee proposed.

More importantly, House Republicans say, their plan falls $167 million under the spending cap that keeps overall budget growth in line with household income and inflation.

But to get there, the GOP had to take a step for which it’s criticized Lamont and Democratic legislators for taking in the past: shifting spending outside of the formal budget, and therefore outside of cap limits.

Connecticut has a taxing arrangement with its hospitals that involves collecting from and returning to hospitals hundreds of millions of dollars as part of a complicated plan to qualify for extra Medicaid funding from Washington.

The House GOP plan would move roughly $700 million in payments to hospitals outside of the formal budget and spending cap system, Nuccio said, adding, “I know … we’re always yelling, ‘You can’t take things off budget.’”

But the Tolland lawmaker added that’s like other steps Connecticut long has employed to ensure the cap doesn’t effectively block it from accepting federal aid.

Since 2013, Connecticut has kept the local dollars it spends on Medicaid within its budget. But the federal money spent on Medicaid programs in the state is spent and tracked outside of the budget, so it doesn’t count against cap limits.

Republicans also to save $150 million next fiscal year by delaying allowable new hires throughout the fiscal year.

The state currently has about 2,600 authorized but unfilled positions, Nuccio said. And in recent years, many authorized posts have remained vacant, she said, adding it’s safe to assume many could remain vacant, at least for a portion of the next 12-month budget cycle.