Connecticut needs to continue a disciplined approach to spending
Six years ago, Connecticut lawmakers — faced with the latest in a recurring series of multi-billion dollar budget deficits — were in the early stages of a drawn-out debate over taxes and spending that was not resolved until Halloween.
As painful as that 2017 budget debate was, it was also necessary. Tax hikes defined the post-recession decade, overwhelming taxpayers and inflicting significant damage on the state’s economy.
Connecticut was fast approaching the point where fixed cost obligations — dominated by state employee pension fund liabilities —were swallowing 60% of revenues, shortchanging services and programs amid what one state official gloomily described as “a permanent fiscal crisis.”
Resolving that budget impasse required a rare legislative override of gubernatorial veto and a remarkable bipartisan agreement that delivered long-overdue, transformative structural reforms.
As state Sen. John Fonfara, one of the architects of those reforms, noted earlier this month, Connecticut has reaped the benefits of the 2017 deal “in ways none of us could have predicted.”
“Today, we are not only seeing unprecedented surpluses and investments in paying down our pension debt,” the Hartford Democrat said during the Senate’s debate on extending the reforms, “but a new sense of encouragement by the business community that has stuck it out through many tough years.”
The reforms also provided the foundation for Gov. Ned Lamont’s proposed two-year, $50.5 billion budget, featuring more than $500 million in middle-class tax relief, the first significant income tax cuts in the state’s history.
There’s a lot to like about this budget plan, not the least being the promise of tax cuts — an unimaginable prospect just a few years ago. It also addresses a number of factors driving the state’s worker shortage crisis, the greatest threat to our economic recovery and growth.
Connecticut is one of the 10 most expensive states to live and run a business, our workforce is among the oldest in the country, we don’t have enough housing options, and population growth over the last decade-plus is stagnant, a point the governor acknowledged in his January State-of-the State address.
The Lamont budget recognizes those challenges — many of which predate the pandemic — with initiatives focused on affordability, workforce development, student debt burdens, and housing, including funding to boost new housing units by an additional 6,400 over the next two years.
CBIA’s 2023 Transform Connecticut policy solutions embrace similar themes — lowering the costs of living and running a business, implementing pathways to rewarding careers, attracting and retaining new residents, and easing the small business tax burden.
Lamont’s proposed restoration of the pass-through entity tax credit returns more than $60 million to 123,000 small businesses, capital that will be used for hiring and retention, worker training, and other growth-based investments.
As his budget plan moves through the legislative process, lawmakers must leverage additional opportunities to support smaller employers, long disadvantaged by the state’s tax policies and penchant for costly workplace mandates.
That includes expanding access to the research and development tax credit, a valuable tool that drives innovation and returns between $1.24 and $2.36 for every dollar that’s claimed. The governor’s budget proposes tax credits for large companies that help employees with childcare costs and student loan debt — that also should be expanded to small employers.
In a state where 90% of employers report difficulties finding and retaining workers, isn’t it also time to repeal the sales tax on training programs? And, let’s finally sunset the temporary corporate tax surcharge, which has long sent the wrong message about Connecticut’s business climate.
Lamont’s proposals represent the beginning of the budget process and will draw pressure from multiple quarters over the next few months. Competing calls for tax hikes, additional tax cuts, more government spending, and spending cuts already echo around the state Capitol on a daily basis.
As this year’s budget debate plays out, two critical themes must guide policymakers’ decision making.
First, we have an historic opportunity to take advantage of Connecticut’s sound fiscal health and make the investments necessary to leverage our many strengths through a more vibrant, robust, and equitable economy.
Second, we cannot forget how we got here. While lawmakers recently extended the 2017 fiscal guardrails for at least another five years, that required last-minute compromise after special interest groups protested an initial 10-year agreement.
The discipline that delivered a maxed out rainy day and a series of record budget surpluses is the right blueprint to shape Connecticut’s future prosperity and must continue to define our fiscal approach.
Chris DiPentima is the president and chief executive officer of CBIA, the state’s largest business organization.