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State Budget Deal Nears; Tax Hikes, Transportation Climate Initiative Off The Table

File photo of Gov. Ned Lamont and his budget adviser, Melissa McCaw.
Mark Pazniokas
File photo of Gov. Ned Lamont and his budget adviser, Melissa McCaw.

Gov. Ned Lamont and legislative leaders didn’t reach a deal Friday on a new two-year state budget, but they claimed that next step was just around the corner.

Though details remain to be ironed out, Lamont, House Speaker Matt Ritter and Senate President Pro Tem Martin M. Looney said they resolved differences involving municipal aid and the spending cap.

The governor’s proposed Transportation Climate Initiative was put on ice, at least for this year, as was a proposed $50 million tax on health insurers. And a proposed highway use tax on large commercial trucks would still be voted upon, yet separately from the budget.

Both sides continue to talk about a new tax on recreational marijuana sales, but it remained unclear Friday whether that would be incorporated into the next budget.

“I think we’re getting to a budget,” Lamont said following the second of two afternoon meetings with leaders of the House and Senate Democratic majorities.

Looney said “we are certainly, I think, closer to a resolution, than we were yesterday.” But he qualified that by noting, “There are a number of details that were discussed in concept that have to be verified in depth.”

As evidence of the improving outlook, Speaker Matt Ritter canceled plans for the House to vote Saturday on a budget its members had endorsed — a package that Lamont opposed. Leaders now say they hope to begin voting as early as Monday on a plan the governor will sign.

Lamont gives ground on spending cap issue
Lamont and lawmakers both insisted they removed one of the biggest stumbling blocks, a legislative plan to work around the statutory spending cap.

The Appropriations Committee wants to increase both general government and education aid to municipalities over the coming biennium but couldn’t make it fit under the cap — a tool designed to keep appropriations in line with the growth in statewide household income.

The panel recommended a “revenue intercept,” an accounting maneuver that involved capturing about $350 million in sales tax receipts before they arrive in the General Fund and assigning them to an off-budget account to support local aid.

Such intercepts have been employed numerous times since the cap was established in 1991.

“There’s been a lot of gimmickry over the years, over many years and I wanted to work hard to make sure … the taxpayers of Connecticut knew that we had an honest and balanced budget,” Lamont said.

But when push came to shove, the two sides agreed half of the enhanced aid would remain in the traditional budget, and some would go outside of the cap.

“We’ve, so to speak, split the difference there,” the governor added.

The governor also was wary of Ritter’s proposal to borrow as much as $2 billion over the next decade to support capital projects and programs in poor cities. Lamont says a two- or three-year bonding commitment, for now, is wiser, adding that billions of dollars in emergency federal coronavirus relief flooding into Connecticut over the next two years should be sufficient to meet many needs in the meantime.

And while final details of that issue remain to be resolved, both Lamont and Ritter said they no longer believe it is a stumbling block to a budget deal.

Tax increases won’t be in the next budget 
The governor also said was glad the deal he and leaders were working toward would not include any state tax increases.

Controversial proposals from the Finance, Revenue and Bonding Committee to impose two income tax surcharges on households earning more than $500,000 per year have been abandoned, as does a finance panel plan for a new digital media ads tax. 

The governor claimed these increases would have hindered Connecticut’s economic recovery from the pandemic.

But lawmakers also pressed Lamont to let go of some tax hikes he wanted.

The governor had pressed for Connecticut to join Rhode Island, Massachusetts and Washington, D.C., in a regional transportation climate initiative.

Designed to curb auto emissions the TCI would impose fees on fuel producers. But because these costs likely would be passed onto motorists at the pump, critics say it amounts, effectively, to a gasoline tax hike. The state stands to gain more than $60 million per year from this initiative by 2023.

Projections are it could add as much as 5 cents per gallon to the price of gasoline by 2023, but opponents charge it the impact would be greater.

“What Connecticut middle- and low-income families need, quite frankly, is a break, not added burden,” said Senate Minority Leader Kevin Kelly, R-Stratford, who described the TCI as a “cash grab.”

“Increasing gas prices is just very dangerous to try to do right now,” added House Minority Leader Vincent J. Candelora, R-North Branford. And with several northeastern states not participating in the TCI, he said, Connecticut’s economy only would be harmed by taking part.

Lamont tried to rally support for the TCI on Friday, noting that the funds would improve air quality and overall health statewide, particularly in Connecticut’s poor urban centers.

But Looney said that while abating air pollution is a laudable goal, fuel taxes are one of many regressive taxes in Connecticut — meaning the rates are the same regardless of household income. Regressive gasoline, sales and property tax systems already place hefty burdens on Connecticut’s poor and middle class.

And Looney said that if Lamont insisted tax hikes on the rich would hurt the economy, tax hikes of any kind should be off the table.

“If we’re not talking revenues, then we’re not talking revenues,” Looney said.

Lawmakers also insisted that Lamont’s highway usage tax, which would generate almost $90 million annually from large, commercial trucks, also be excluded from the budget.

But Lamont says the state’s Special Transportation Fund still needs revenues to finance highway, bridge and rail upgrades over the coming decades.

As a compromise, legislative leaders said the truck fee would be voted upon this session but separately from the budget package.

Tax break for middle class is scrapped, relief for working poor still in play
One other casualty of the growing budget consensus involves a state income tax cut for low- and middle-income households.

The finance committee had recommended a new child tax credit within the state income tax system be launched right away. That would have meant a $300-per-child credit, up to a maximum of $900, for low- and middle-income households starting next year. The full credit would reach $600 per child, topping out at $1,800 per household in 2023.

The Lamont administration had expressed some concern about the state’s ability to afford the credit, which would have cost the state $300 million per year once fully implemented.

Legislative leaders originally agreed to defer the tax break until 2024. But according to Paul Mounds Jr., Lamont’s chief of staff, Looney and Ritter offered Friday to take it off the table entirely.

Rep. Sean Scanlon, D-Guilford, who co-chairs the finance panel, insisted Friday that the debate for tax relief was not over.

“I think we need to find a way to make it clear to the people of Connecticut that we’re not kicking the can [down the road] on this,” he said.

The new budget will include a state income tax cut for Connecticut’s working poor, Ritter and Looney said. The state Earned Income Tax Credit, which currently is equal to 23% of the federal EITC and provides about $118 million annually to just under 200,000 households, would climb to 30%.

The new budget also will increase eligibility for low-income residents to receive public subsidies to help buy health insurance on the state’s exchange. Lamont’s budget director, Melissa McCaw, said an estimated 30,000 residents would be helped by this initiative.

Faith and labor leaders rallied outside of the Capitol Friday, insisting the plan the governor and top lawmakers does too little to assist Connecticut’s poorest and most vulnerable citizens.

About three dozen members of the Recovery For All Coalition held a mid-day prayer vigil in Lamont’s Capitol parking space, carrying signs that read “Tax Wealth” and “Poor People Deserve Justice.”

“We need a recovery that just doesn’t bless the rich among us, but also blesses the poor among us,” said the Rev. Rodney Wade, pastor of the Long Hill Bible Church in Waterbury. “And we are standing here in this place to tell the governor that there are many people who believe that he must do the right thing in spite of himself.”

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