Last-Minute Budget Deal Reached, Major Fiscal Challenges Remain

Issues & Policies

State lawmakers passed their second bipartisan budget in less than a year in the closing hours of the 2018 General Assembly session.
Adjustments legislators made to the $20.8 billion plan, the second year of a two-year budget passed seven months ago, do not increase taxes but raise spending by 2.1% over the current year.

Legislative leaders announce budget deal

Legislative leaders announce the last-minute bipartisan budget agreement at a May 9 press conference.

Lawmakers achieved this through an unexpected $1.3 billion windfall in state income tax receipts, mostly from capital gains and other investment income.
But they failed to address the severe economic challenges Connecticut continues to face, said CBIA president and CEO Joe Brennan.
“Connecticut’s economy, though showing recent signs of improvement, is still not growing at the rate of other states in the region,” Brennan said.
“We consistently hear from our members that a major cause of substandard growth is the state’s precarious fiscal situation.
“The lack of progress on the more serious short- and long-term financial problems facing the state means that these issues will continue to impact our ability to attract investment and jobs here.”

Fiscal Commission Recommendations

The budget includes a handful of recommendations from a refined list of solutions released earlier this month by the Commission on Fiscal Stability and Economic Growth.
The commission issued a report to lawmakers in March with recommendations on fixing the state’s competitiveness, growth, and affordability.
Brennan said the report “showed in stark terms how the state’s recurring deficits and unfunded long-term liabilities are suppressing economic growth.”
“The commission was created to provide a vision on where legislators and the governor should lead Connecticut,” Brennan said. “Yet sometimes big picture goals don’t translate easily into a piece of legislation.

CBIA's Joe Brennan

The serious short- and long-term financial problems facing the state continue to impact our ability to attract investment and jobs here.

"While there was controversy around some of the commission’s recommended solutions, the problems the commission highlighted are not going away."
Lawmakers agreed to the commission's recommendations to study a pro-growth rebalancing of state taxes, revenue and expense optimization, and reforming the Teachers' Retirement System.
Brennan said he's hopeful those studies will "prepare the 2019 General Assembly to take the difficult but necessary steps to tackle the state's fiscal challenges."

Election Season Pivot

Brennan thanked the governor's administration and Democratic and Republican lawmakers for their hard work.
"Now, as we pivot to election season, it's critical that voters get to know their candidates and choose those who recognize the urgency needed to aggressively attack our state's most pressing economic problems," Brennan said.
The bipartisan budget erases a $387 million deficit, increases municipal funding by $70 million over the current fiscal year, and restores $130 million to the Medicare Saving Program.
It also leaves about $1.1 billion in the state’s rainy day fund.
The Senate passed the budget by a 36-0 vote, with the House approving it 142-8.
Republicans introduced their budget proposal in the state House as an amendment, but it failed on a largely party-line vote.
That forced the GOP to abandon efforts to reform collective bargaining for state employee benefits—an issue the next legislature faces with projected budget deficits of $2.2 billion in 2020 and $2.9 billion in 2021.

Transportation, State Bonding

The budget averts planned rail and bus fare hikes by transferring $29 million of sales tax receipts into the Special Transportation Fund.
It also includes about $1 billion in bonding for transportation.
But that's not enough to meet the state's long-term transportation needs, and it's expected lawmakers next year will revisit the issue of implementing highway tolls after legislation died this year.
The budget also cuts the state's "bond lock" pledge period in half.
Lawmakers, in assembling a budget last fall, supported better spending habits by placing caps on spending and borrowing.

Connecticut faces projected budget deficits of $2.2 billion in 2020 and $2.9 billion in 2021.

Under the lock, the state, upon issuing a bond, promises for 10 years not to change any of the fiscal rules that establish how the state can spend, borrow, or budget money for the life of the bond, except in limited situations.
The new budget changes that period to five years. Opponents felt the lock placed too many restrictions on the state's borrowing abilities.
The budget also redefines the state's volatility cap by allowing it to grow each year based on the annual rate of personal income growth.
And it cuts the sales tax on boat purchases to 2.99% to allow Connecticut boat dealers to compete with neighboring states, especially Rhode Island.


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