Conn. House adopts $51B budget with big middle-class tax cut
The House of Representatives overwhelmingly approved a $51.1 billion biennial budget early Tuesday morning that features a broad-based state income tax cut and dramatically boosts funding to local school districts.
The package, which passed 139-12 with strong bipartisan support following a nearly three-hour debate that began late Monday, now heads to the Senate, which also is expected to approve the budget before the regular 2023 legislative session adjourns at midnight Wednesday.
The two-year plan spends more on higher education and social services. But opinions were mixed about whether that would be sufficient to avert layoffs and service cutbacks in either field or whether it would provide enough to end an ongoing strike at group homes for the disabled.
The budget appropriates $25.1 billion for the fiscal year that begins July 1 and $26 billion in 2024-25, narrowly falling under the spending cap in each year.
It does not move hundreds of millions of dollars in tax receipts outside the cap system — as majority Democrats in the legislature sought to do before they were stymied by Gov. Ned Lamont and Republican lawmakers. But it does carry hundreds of millions of dollars from this fiscal year’s projected $2.95 billion surplus into the first year of the new biennium.
Because those surplus dollars technically were appropriated this fiscal year, they won’t count against the spending cap in the coming biennium.
The plan also directs Lamont to find more than $316 million in savings once the budget is in force. Traditionally, governors have met these directives by limiting hiring — a prospect likely to spark opposition from labor unions and from others who contend state agencies already are badly understaffed.
“This budget will deliver the largest personal income tax cut in the state’s history,” said Lamont, whose administration negotiated the two-year plan with legislative leaders. “This is not a temporary tax cut — it is designed to be sustainable for years to come. At the beginning of the legislative session, I promised that this budget would build growth and opportunity for all of Connecticut, and this agreement does just that.”
“We think there’s lot of good things in there,” House Speaker Matt Ritter, D-Hartford, said of the overall budget, which negotiators for the legislature and Lamont administration finished crafting this past weekend.
“Look, do I wish we could spend a couple of hundred million dollars more? Yes, I do. I think that’s where our caucus was,” Ritter said.
But he quickly added that would have forced a much larger effort to work around the spending cap and praised Democrats for compromising on this issue to ensure support from Lamont, other fiscally moderate Democrats and the GOP.
“We’re very lucky to have a caucus that is that mature, responsible about governance, and not willing to just say, ‘if you don’t give me the one thing I want, I’m walking away,’” Ritter said.
A broad-based CT income tax cut for the middle class
Neither the governor nor legislators were willing to walk away from the idea of providing the first income tax rate reduction since the mid-1990s.
Lawmakers from both parties have been calling for a major rate cut since before the session began in January given the huge surpluses Connecticut has amassed. Last fiscal year closed $4.3 billion in the black, the largest surplus in state history and equal to nearly one-fifth of the entire General Fund. This year’s nearly $3 billion cushion would be the second-largest.
The budget specifically would reduce the two-lowest marginal rates on the income tax. The 3% rate imposed on the first $10,000 earned by singles and the first $20,000 by couples would drop to 2%. The 5% rate imposed on the next $40,000 earned by singles and the next $80,000 by couples would drop to 4.5%.
But that relief is aimed chiefly at Connecticut’s middle class. The budget would begin to phase out the tax cut for singles earning more than $105,000 per year and for couples topping $210,000.
The rate changes are expected to save many middle-class households $300 to $500 per year in the 2024 tax year, for which returns are filed in the spring of 2025.
The new budget also will include Lamont’s proposal to bolster the income tax credit for Connecticut’s working poor from 30.5% of the federal Earned Income Tax Credit to 40%. This is expected to provide, on average, about $210 more annually for more than 200,000 households that generally earn less than $60,000. Unlike other income tax cuts, this EITC enhancement would take effect in the 2023 tax year, meaning eligible filers could benefit with returns filed next spring.
A third form of income tax relief in the package involves expanding an existing exemption for certain pension and annuity earnings.
Currently, those benefits are exempt for single filers whose overall adjusted gross income is less than $75,000 and for couples whose AGI is less than $100,000. The budget gradually reduces those exemptions for singles making between $75,000 and $100,000, and for couples earning between $100,000 and $150,000.
According to the legislature’s nonpartisan Office of Fiscal Analysis, all of the income tax-cutting measures combined will save taxpayers more than $460 million per year.
“This budget returns hundreds of dollars [annually] to individuals, families, retirees, workers throughout the state of Connecticut,” said Rep. Maria Horn, D-Salisbury, co-chairwoman of the Finance, Revenue and Bonding Committee. “It’s an excellent budget.”
“It’s a delight to be able to stand and talk about this budget,” said Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance committee. “This does provide real tax relief for our families.”
And though Republicans believe the legislature should have been more aggressive in offering tax relief, Cheeseman said, both she and Horn said it’s a sustainable proposal that lawmakers likely won’t have to repeal in a year or two if new fiscal challenges arise.
“We're very pleased that a lot of the tax initiatives that House Republicans wanted … are still in this budget,” House Minority Leader Vincent J. Candelora, R-North Branford, said during a press conference Monday morning. “It's recognizing the middle class needs relief.”
“This budget is attempting to carry us forward,” Candelora said during the House debate, adding that the plan enjoyed strong bipartisan support because it respected the spending cap and other budgetary controls that have produced big surpluses in recent years.
Forty-one of the House chamber's 53 Republicans joined with all the Democrats voting Tuesday morning to approve the plan.
But not all Republicans supported the budget.
Nonpartisan analysts project the package increases spending 3.8% in the first fiscal year and 3.5% in the second. And that doesn’t include the about $340 million from the current fiscal year’s surplus that would be carried forward into the new biennium, rather than used to pay down state debt.
Rep. Gale Mastrofrancesco, R-Wolcott, one of 12 Republicans to cast an opposition vote, said the spending increase simply is too large to support, even given the tax cuts.
“At the end of the day, the numbers don’t lie,” she said.
The new budget also freezes the state’s diesel fuel tax for the 2023-24 fiscal year at 49.2 cents per gallon. Currently, the diesel rate is set annually on July 1 based on a formula that relies heavily on diesel fuel prices over the prior year.
Last July, surging inflation and diesel prices led to a 9 cents-per-gallon hike in the tax.
No child tax credit for families or relief for businesses
One tax-cutting proposal that drew strong support from progressives in the legislature and from several policy groups failed to make it into the budget.
This involves a child tax credit aimed specifically at helping low- and middle-income families with kids.
Comptroller Sean Scanlon has spearheaded this effort, pitching a credit against the state income tax equal to $600 per child, up to a maximum of $1,800 per household.
But Lamont, other moderate Democrats and Republicans said Connecticut needed to offer a more broad-based cut to assist more households. The income tax-cutting plan that was adopted is expected to benefit roughly 1 million filers.
“The lack of a state child tax credit in the budget not only negatively impacts Connecticut families who are struggling to make ends meet — it hinders our progress to creating a more equitable, sustainable Connecticut,” wrote the CT Nonprofit Child Tax Credit Coalition. This group of 30 local organizations advocating for the credit includes Connecticut Voices for Children and the Connecticut chapter of the United Way.
Businesses also came up short in the new budget.
Lamont had hoped to reduce a state tax on about 120,000 small and mid-sized businesses that don’t pay the corporation tax, collectively saving them $60 million annually.
Not only was this proposal left out of the budget, but a 10% surcharge on the corporation tax that was supposed to expire this year was retained and continued through 2025.
“The absence of small business tax relief in the budget is absolutely baffling and, given the current uncertainty and challenges that those smaller firms face, extremely disappointing,” said Chris DiPentima, president of the Connecticut Business and Industry Association, who called the proposed relief for small and mid-sized businesses “critical” to help firms recover from the pandemic.
"That's real money small employers could be using to invest in workforce development and growing their businesses,” he added. “Those small firms are the heart and soul of our economy and deserve better.”
The corporation tax surcharge has been scheduled to be phased out, and then retained, on numerous occasions over the past two decades. And DiPentima said the latest extension “does little to improve perceptions about Connecticut's business climate and the state's economic priorities.”
More aid for local school districts
One of the biggest winners in the new budget are local school districts.
A program enacted in 2017 has the Education Cost Sharing grant gradually increasing annually through 2027, and Lamont had planned to maintain that schedule, adding close to $140 million to local schools over the coming biennium.
But many Democrats argued the 2017 schedule was too modest, that state government could afford to do more and that the coronavirus pandemic and high inflation in 2022 has left many local districts financially hurting. Advocates also claimed many communities are struggling with a shortage of teachers and paraprofessionals.
The new budget includes Lamont’s increase and adds another $160 million for local districts over the biennium. In addition, $25 million is included in each of the next two years to bolster special education.
Subira Gordon, executive director of ConnCAN — a New Haven-based policy group advocating for improvement in public education — said the budget will “move us one step closer to providing Connecticut children with an equitable education. This investment sends a message to families across the state that policymakers are investing in education for future generations.”
And Lucy Nolan, policy director for End Hunger CT!, praised legislators for including $16 million in the new budget to shore up school meal programs for students in need.
But Nolan also expressed concern about language in the budget requiring families to apply for support, saying it would “negatively impact the goal of equal treatment of all kids in the cafeteria, and we will continue to advocate for the least complicated access.”
The budget also includes a $45 million increase in non-education municipal aid and adds $1.8 million to help towns fund early voting.
Public colleges and universities may be headed for a crisis
While education at the K-12 level fares well in the new budget, higher education is in a very different situation.
The legislature has given public colleges and universities hundreds of millions of assistance in recent years from two limited sources: state budget surpluses and emergency federal pandemic grants.
Lamont and Republicans have been pushing hard this year for state colleges and universities to curtail spending, arguing these institutions should have prepared better to live without this emergency aid. They also note that enrollment has been shrinking, particularly at the community colleges and regional state universities.
The new budget would provide state universities and community colleges with about $630 million next fiscal year, coming from a block grant supplemented by more than $200 million in pandemic grants and surplus dollars. That effectively matches the $620 million the system received this fiscal year.
But in 2024-25, the regional universities and community colleges would be expected to get by with about $115 million less than they received in 2023-24.
Similarly, the University of Connecticut and its Farmington-based health center would receive about $20 million to $30 million less than the level needed to maintain current services in the first year of the new biennium. But the funding gap in the second year would exceed $100 million.
Both UConn and the state university system have warned that this extent of cost-cutting likely would force tuition hikes as well as faculty layoffs and larger class sizes.
Rep. Greg Haddad, D-Mansfield, whose district includes UConn’s main campus in Storrs, said public universities and colleges not only have been placed under financial stress by inflation and the pandemic but also by having to cover significant pay hikes Lamont negotiated last year with most state employee unions.
Haddad said state officials also have long known college and university systems needed to use the temporary funds they received from the state in recent years to fund ongoing expenses, like wages and benefits.
And while he supports the overall state budget, no one should be surprised, Haddad said, that higher education will be in fiscal trouble without more, recurring state funding in the near future.
“It’s like we found the potholes in the road and filled them with snow,” he said. “And spring is coming.”
The budget also expands the state’s debt-free community college program to include previously enrolled students returning to college after a break.
Nonprofits get a boost, but much less than they sought
The community-based nonprofits that deliver the bulk of state-sponsored social services also were unhappy with the new budget, despite getting a funding increase.
The package includes $53 million to provide a 2.5% rate increase in the first year of the new biennium for most nonprofits. It then maintains this funding hike in the second year.
The industry, however, was asking for much more — a 9% bump starting July 1 and then a 7% hike on top of that in July 2024.
The CT Community Nonprofit Alliance estimates that minimal or no state funding hikes for the past two decades have forced many agencies to cut staff and shrink programs.
The alliance said the industry has lost about $480 million in annual payments from the state since 2007, once adjustments for inflation are made.
The package also includes another $50 million in each year of the biennium to enhance compensation for group home workers serving Connecticut residents with developmental disabilities.
About 1,700 members of the state’s largest health care workers union, New England Health Care Employees Union SEIU 1199NE, went on strike May 24 at group homes run by six nonprofit agencies for the state — facilities that serve about 1,500 clients.
Most of its group home workers currently earn $17 to $18 per hour, according to the union, which wants “a pathway to $25/hour minimum wage.”
A union spokesman said SEIU 1199 was analyzing the budget and didn’t say whether the organization believed the funding increases would be sufficient to end the strike.
But union President Rob Baril said members are committed to making significant progress on wages and benefits.
“We’ve started a movement for racial and economic justice for long-term care workers, and expanding services to save lives,” Baril said. “Why are we even here? Why do we have to do this? Why are we fighting for group home workers and nursing home workers and home care workers? We’re fighting to make sure that publicly funded workers with our tax dollars are provided with a wage that keeps people from being evicted, from living in their cars, from carrying thousands of dollars in medical debt.”
House Majority Leader Jason Rojas, D-East Hartford, challenged legislators to keep perspective.
Recalling the decade of the 2010s, which featured several budget deficits, two major tax hikes and several cuts to core programs, Rojas said the new plan is far removed from that.
“We really are in a really good, healthy place,” he said.
But while touting the plans new investments in education, social services, health care and housing, Rojas noted the striking health care workers continue to protest daily outside the Capitol and that many believe core programs still need more resources.
“So we know that the need continues,” he added.
Big savings targets could force Lamont to shrink staffing further
Another element of the new budget also has raised concerns with labor, and it stems from legislators’ struggles to live within the spending cap.
This mechanism tries to keep spending growth in line with inflation or the increase in household income.
But what has happened, historically, is that a few cost drivers — employee wages and benefits, as well as required contributions to public sector pensions — grow faster than personal income and inflation. Everything else, like social services, health care and aid to towns, is lucky if it stays flat year over year.
Factor in the recent economic damage caused by the pandemic and by surging inflation, and too many core programs need a dramatic infusion of cash at once.
One way legislators found to move around that cap is to carry forward a significant portion of this year’s surplus into the new budget. In this case, they are moving almost $340 million from this fiscal year’s $2.95 billion surplus into the new biennium.
Another way to get around the cap is to artificially lower the bottom line by building savings targets into the budget plan. The new budget assumes the governor will lower General Fund spending by $134 million next fiscal year and by $183 million in 2024-25 by finding savings along the way.
Lamont’s predecessor, Gov. Dannel P. Malloy, routinely received aggressive savings targets from legislators during his tenure, which ran from 2011 through 2018. And the state’s Executive Branch workforce dropped by 10% during this time.
The workforce also took a big hit in early 2022 when more than 4,400 veteran workers retired between Jan. 1 and June 30, leaving before new restrictions on retirement benefits took effect.
The net result, union leaders and many legislators say, are state agencies that are dangerously understaffed and overly reliant on overtime.
“Instead of working to address the staffing crisis and passing a moral budget, Gov. Lamont would rather use state service vacancies to ‘balance’ the budget at the expense of Connecticut residents that rely on public services,” said Drew Stoner, spokeswoman for the State Employees Bargaining Agent Coalition, an organization that includes all major state employee unions excluding the state police. “This budgetary tactic is not meant to be used in a time of budget surplus and is just one of the many ways the proposed budget harms working families and fails to meet the needs of today.”
But while some find it hard to live with the spending cap, that mechanism, coupled with other budgetary controls and savings measures enacted in 2017 and renewed unanimously by lawmakers in February, made possible the tax relief and new investments under consideration Monday, said Office of Policy and Management Secretary Jeffrey Beckham, Lamont’s budget director.
“Gov.r Lamont has been clear about what he wanted to see in this budget — sustainable and broad-based tax cuts, adherence to the fiscal guardrails and sustainability in the out-years,” Beckham said. “This budget accomplishes those goals, providing predictability and stability for essential services in future years.”
More funding for child care, medical debt erasure and other health care initiatives
The new budget also provides additional funding for several child and health care initiatives.
It includes $67.5 million in total across two years to fund an 11% rate increase for licensed child care providers and a 6% increase for unlicensed providers in the state’s Care4Kids system.
Legislators endorsed Lamont’s proposal to use state funds to help erase medical debt among low-income Connecticut households but scaled the plan back significantly.
The governor’s plan involves working with one of the nonprofit organizations that have been negotiating with hospitals to purchase medical debt at extreme discounts. Those charities then cancel the debt.
Lamont proposed committing $20 million, which he estimated could be leveraged to wipe out as much as $2 billion in medical debt. The budget instead includes $6.5 million, which legislators said still could help eliminate hundreds of millions of dollars in medical debt.
About $17 million in grants would be provided in total to two of the state’s most financially distressed hospitals: Day Kimball in Putnam and Bristol Hospital.
Another $32 million would support one-time grants to federally qualified health centers, which are the primary source of health services for many residents in Connecticut’s urban centers.
Medicaid coverage through the HUSKY program would be expanded for undocumented children, raising the age limit from 12 to 15 with an additional $3 million in funding in the 2024-25 fiscal year.
Income eligibility for HUSKY C — which provides Medicaid coverage to people who are age 65 or older, blind or living with a disability — would increase from 143% of the Temporary Family Assistance cash benefit to 105% of the Federal Poverty Level. Currently, 143% of the TFA monthly benefit is $700 for an individual and $946 for a two-person family while 105% of the FPL is $1,276 per month for an individual and $1,725 for a two-person family.
The budget also funds an evaluation of Medicaid rates to focus on barriers to health care access and other inequities.
And it adds one position in the Department of Public Health to study infant deaths and to recommend ways to improve health disparities involving maternal care.
New investments in housing and transportation
The bulk of Lamont’s major proposals to expand affordable and other housing development statewide will likely be funded with financing through the biennial bond package, which legislators are expected to adopt before they adjourn at midnight Wednesday.
The administration, which has been negotiating the bond package with legislative leaders, says it will include more than $800 million in capital support for housing development and financial assistance.
But to complement that financing, the budget includes $3 million to help find solutions to homelessness and fund other housing support services, $5 million for homeless shelters and more than $12 million for other housing initiatives.
The new budget expands transit services but not by as much as some transportation advocates had hoped. It includes $18.5 million to expand bus service and otherwise support workforce transportation.
Rail commuter ridership has been down significantly since the pandemic, and the budget increases subsidies in anticipation of some additional riders.
The Shoreline East service, which connects New London and New Haven, currently is at 30% of pre-pandemic capacity. The new budget assumes capacity will reach 44% over the next two fiscal years.
And the Metro-North line, which links New Haven and other shoreline communities in south central and southwestern Connecticut with New York City, is at 86% of pre-pandemic capacity. The new budget assumes ridership will rise to 100%.
Other components of the new budget include:
– More than $22 million for various gun violence prevention and reduction programs, including $5 million for housing vouchers for populations at risk of gun violence.
– $12 million for juvenile review boards to assess at-risk youth and to connect them to support services, and nearly $26 million in additional funds over the biennial for other youth violence prevention programming.
– $1.2 million to continue allowing no-charge inmate calls and messages.
– $35 million to support wage increases for and to enhance recruitment of state police troopers.
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