Derby - The state's surplus would be used for a sales and gas tax refund under an election-year plan announced today by Gov. Dannel P. Malloy, one day after a Republican who narrowly lost to him called for a sales tax cut.

The Democrat's proposal for the estimated $505 million surplus includes $155 million in targeted gas and sales tax refunds, including for those who receive Social Security income and don't file. That works out to $55 to individuals earning less than $200,000 and $110 to joint filers earning less than $400,000.

Malloy, whose proposal is subject to approval by lawmakers, called for boosting the rainy day fund by $250 million and putting $100 million toward the state's pension fund. That would bring the balance of the rainy day fund, which had been completed depleted three years ago, to more than $520 million, Malloy said.

"Connecticut has faced more than its share of challenges over the last few years," Malloy said at a news conference in Derby. "Now that things are beginning to improve, it's critical that everyone shares in the recovery. The plan I'm laying out today takes the responsible path. It puts money in the rainy day fund so that we can be prepared the next time we face financial challenges. It puts additional money into our pension fund so we can pay down our long term debt. And it provides a modest refund for residents who have faced more than their fair share of obstacles."

Malloy also announced that he will introduce legislation in the coming session that would mandate that any surplus in future years be used to bolster the rainy day fund, pay down long-term debt and provide tax relief.

"The budget proposal we are introducing creates a sustainable budget framework that will enable the state to achieve balanced budgets in the coming years and put our state on a path towards strong financial footing," Malloy said. "We are creating a solid foundation that supports necessary services while allowing for potential further reductions in taxes in the coming years."

Senate Minority Leader John McKinney, a Fairfield Republican running for governor, said Republicans have long supported tax relief, paying down the debt and shoring up the rainy day fund.

"Governor Malloy passed the largest middle-class tax hike in state history, including a sales tax rate increase from 6.0 percent to 6.35 percent, the elimination of countless sales tax exemptions, an increase in state gas taxes, an income tax hike, and a $200 property tax credit reduction," McKinney said. "In the face of those deep and permanent tax hikes, this one-time election year rebate simply does not cut it."

Connecticut faces a $2 billion deficit in the next two fiscal years, McKinney said. "It is irresponsible for the governor to continue talking about this year's so-called "surplus' as if those deficits do not exist," he said.

Republican Tom Foley called for a sales tax cut Wednesday as he announced he's running again for governor after losing to Malloy in 2010. Malloy has not said yet whether he'll seek a second term.

Foley said he would keep discretionary spending flat for two years to cut the sales tax by half a percent. Foley slammed Malloy for a large tax increase, saying it put a brake on the economy.

Waterbury Mayor Neil O'Leary, delivering the Democrats' response, said Foley's announcement was filled with promises and lacked specifics. O'Leary said the tax increase was needed to close a $3.5 billion deficit that Malloy inherited.