In his State of the State speech last week, Governor Malloy proposed a revised, $19 billion budget for the second year of the biennium that addresses economic priorities, provides some tax relief, boosts education, and adds to the state’s Rainy Day Fund. With Medicaid spending added, the overall state budget would be $22 billion.

The $19 billion proposal increases state spending by $37.2 million (2.7%) for fiscal year 2015, and would stay under the state’s constitutional spending cap by $8.1 million (but only because the legislature removed some state expenditures out from underneath the spending cap last year). 

With the latest projections showing a budget surplus of more than $500 million for this fiscal year, the governor proposed a three-part distribution of those funds to reduce state debt, increase reserves and provide tax relief, specifically:

  • $250 million for the state’s Rainy Day Fund
  • $100 million extra payment for state’s pension obligations
  • $155 million in gasoline and sales tax refunds

Surplus Questioned

Senate Minority Leader John McKinney (R-Fairfield) and House Republican Leader Larry Cafero (R-Norwalk) both questioned the surplus and said it pales in comparison with budget deficits facing the state in fiscal years 2016, 2017 and 2018.  They noted that the surplus is due in large part to the major tax increase and borrowing the governor included in his first biennial budget.

While the Republican leaders said the use of surplus funds, in principle, to bolster the Rainy Day Fund and to pay down long-term debt is a good idea, they labeled the proposed tax refunds as election-year politics.

Lawmakers will consider the governor’s proposals, and their own, during the 2014 session of the General Assembly that will run until midnight on Wednesday, May 7.   

Priorities

The governor’s budget and speech touched on several  issues important to improving Connecticut’s economic competitiveness and business climate.

Jobs and Training 

Among other things, the governor proposes to extend or expand two state programs used by small businesses—the Small Business Express that helps companies grow, and STEP Up, which helps develop the skills employers need and the talents job candidates must have. The proposal also includes funding for manufacturers to expand and create jobs.

Manufacturing

Precision and advanced manufacturing remain important components of Connecticut’s economy. The revised budget includes $25 million for a new Advanced Manufacturing Fund to encourage new business creation, increase workforce training, and expand use of 3D manufacturing processes.

Transportation

One of the most critical factors businesses weigh when deciding where to locate is a state’s transportation infrastructure. The budget proposal includes transferring $380 million from the General Fund into the Special Transportation Fund to, among other things, increase the number of active, shovel-ready Department of Transportation projects, add over 100 engineers to the agency’s staff, and allow DOT to use more efficient project-delivery methods.  Also in the budget is nearly $50 million to improve commuter rail in the state. However, it should be noted that monies were transferred from the Special Transportation Fund to the General Fund to balance the budget last session.

Long-Term Healthcare

Connecticut’s obligations for long-term healthcare are a major challenge to the state. Reducing long-term healthcare costs and improving services is one of the most important challenges facing policymakers. The governor’s proposal expands long-term services and supports to help accelerate the state’s rebalancing of long-term healthcare from institutional to in-home care.

Regulatory Reform

One of biggest keys to making Connecticut more competitive is making the state’s regulatory climate more user-friendly for business. The governor said that the state had “started the task of bringing Connecticut’s’ regulations into the 21st century.” After asking for the input of businesses, the governor said he would soon announce plans to eliminate “nearly one thousand pages of unnecessary state regulations.”

Talent

Connecticut’s economy needs a steady supply of talent capable of competing in the 21st century, and all of our young people will need to be prepared to contribute. The budget revision proposes to expand the state’s pre-kindergarten programs, create a program to help families save for their children’s education, and funds the transformation of the state’s university system.

Next Steps

In the next several weeks, the legislature’s Appropriations Committee will consider the spending aspects of the proposal, and the Finance Committee the tax recommendations.  

For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 | bonnie.stewart@cbia.com | @CBIAbonnie