State Budget Adjustments Hike Spending, Skirt Guardrails

The General Assembly’s fiscal year 2027 budget revisions adopted a series of fiscal workarounds to increase annual state spending to $28.1 million.

SB 1, the primary budget adjustment implementer, revises state appropriations, modifies budget controls, makes significant changes to tax policy, and adopts a wide range of structural and programmatic adjustments affecting employers, municipalities, and state agencies.

The bill, which passed the Senate 30-6 and the House 127-31, ballooned to 489 sections and was released just hours before the Senate began debate May 2.

Many of the concepts were featured in other bills this session, but several were not seen by the public before the bill’s strike-all amendment was filed in the pre-dawn hours last Saturday.  

CBIA president and CEO Chris DiPentima said that while the adjustments offered relief to cities and towns, they rely heavily on weakening the state’s fiscal guardrails, one-time revenue measures, and off-budget transfers.

“Rather than building on the stability created by the fiscal guardrails over the past eight years, policymakers leaned heavily on budget gimmicks and diversions,” he said.

Fiscal Guardrails Altered—Again 

Lawmakers increased General Fund spending by 3.5% and Special Transportation Fund spending by 5.7%, reflecting revised appropriations across multiple state funds.

The bill also increases state bond authorizations by $648 million to support capital investments, including workforce training, education, and infrastructure projects. 

The adjustments required the governor declaring “a fiscal emergency,” allowing an $85 million increase to the statutory spending cap.

Legislators also modified the volatility cap, redirecting $813.7 million in revenue that would otherwise be reserved for debt reduction. 

“Lawmakers weakened our future long-term fiscal stability so they could spend more now.”

CBIA’s Chris Davis

Davis warned of the negative consequences of circumventing the fiscal guardrails—key to the state’s new-found fiscal stability and economic growth.

“Those changes really set us up for potential fiscal instability in the out years,” he said,

“Essentially, lawmakers weakened our future long-term fiscal stability so they could spend more now.”

The redirected funds were allocated to: 

• Increased municipal grant funding 
• Higher education grants 
• A $300 million deposit into the Early Childhood Endowment Fund 

Meal tax revenue was also redirected in part to the Tourism Fund, increasing dedicated funding to support tourism promotion and economic activity. 

Tax Policy Changes 

The budget adjustments include several tax policy provisions affecting business investment, workforce benefits, and compliance. 

The bill expands eligibility for the research and development tax credit to pass‑through entities, subject to an overall $25 million annual program cap.

This change enables the tax credit for qualifying small businesses that incur eligible R&D spending in Connecticut and allows small business owners to claim the credit against their personal income tax liability. 

Qualified small businesses must apply for and receive a credit voucher to claim the credit, which equals 6% of the R&D spending they pay or incur for a tax year.   

This tax change was a top priority for CBIA this session. 

The legislation fully decouples Connecticut from a new federal law that allows immediate expensing of certain depreciable qualified production property expenditures.

The budget expands eligibility for the research and development tax credit to pass‑through entities.

Instead, those costs will now continue to be depreciated over the longer 30 year-schedule for Connecticut tax purposes. 

“As other states in our region have also scaled back this improvement to the tax code, Connecticut had the opportunity to position itself as the best state in the region for relocating and expanding manufacturing facilities and jobs,” Davis said.

“Unfortunately, that opportunity is now lost.” 

Beginning in tax year 2026, however, the state will conform with the same federal law for domestic research and experimentation expenditures, allowing immediate expensing rather than amortizing those costs over five years. 

The budget establishes a new credit of up to $1,000 per covered employee for qualifying small businesses that contribute to Individual Coverage Health Reimbursement Arrangements offered through Access Health CT’s BusinessPlus platform.

The credit is capped at $5 million annually statewide. 

Other tax provisions include: 

• Replacing the cannabis total THC potency tax with a flat 10.75% excise tax 
• Extending by two years the existing redemption rate for film and digital media production tax credits 
• Authorizing municipalities to exempt up to $50,000 of assessed value for certain qualifying primary residences—potentially shifting a greater tax burden on commercial and industrial property taxpayers

Workforce, Labor‑Related Provisions 

The bill includes a broad set of workforce policy changes, studies, and administrative adjustments. 

Benefits paid through the voluntary shared work program will not be charged to an employer’s experience account during weeks in which the state is in an extended benefit or high unemployment period. 

The definition of “hours worked” is expanded to include time employees spend in employer‑required security screenings, with implications for wage‑and‑hour compliance.

This change was made to codify the recent ruling on the subject by the Connecticut Supreme Court in Del Rio v. Amazon. 

The legislation directs the creation of several studies and working groups, including: 

• A working group to study a payroll tax similar to the proposal contained in SB 513 this session 
• A requirement for the Office of Policy and Management (OPM) to develop a plan for a potential “productivity surcharge” applied to employers that reduce workforce levels due to innovation 
• A task force on workplace heat safety standards 
• A study by the labor commissioner regarding worker rights under economic pressure 
• A delayed report on compensation of transportation network company and delivery drivers to allow for the hiring of an outside consultant 

The bill also revises successor employer provisions included in HB 5003, allowing disciplinary action—including termination—when an employee’s prior attendance or performance would lead a reasonably prudent employer to take similar action. 

Energy, Health 

The budget makes several structural changes to state agencies and healthcare‑related policy. 

• Reconstitutes the Public Utilities Regulatory Authority as an independent agency 
• Eliminates the Office of Health Strategy, transferring its duties to other state agencies 
• Removes the Commission on Human Rights and Opportunities from the Department of Labor, restoring independent agency status 
• Moves hospital tax payments off budget and establishes a five‑year hospital tax planning framework 
• Requires the Office of Policy and Management to study the feasibility of establishing the Connecticut Option and report by Jan. 15, 2027 

Transportation, Infrastructure, Economic Development 

The bill includes targeted transportation and development investments, including: 

• Dedicated funding to support Shore Line East rail service operations 
• Procedural changes affecting double utility poles, impacting utilities and telecommunications providers 
• Measures facilitating the expansion of the new terminal at Tweed–New Haven Airport 

Bond authorizations support several major projects, including: 

• $150 million for design and construction of a new Windham Technical High School 
• $50 million for design and construction projects at Vinal Technical High School 
• $5 million for Department of Energy and Environmental Proection permitting‑related IT upgrades and natural diversity data base mapping 

Additional investments include $500,000 for the Connecticut AI Academy at Charter Oak College, expansion of the greyfields program, and creation of the Clay Arsenal Workforce Readiness Program to connect Hartford residents with employment and training opportunities. 

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 For more information, contact CBIA’s Chris Davis (860.244.1931).