Gov. Ned Lamont's proposed budget adjustments contain no major tax increases but scrap or postpone plans to eliminate over $28 million in business taxes.
The $22.3 billion fiscal 2021 budget Lamont unveiled Feb. 5, the opening day of the 2020 General Assembly session, increases spending by 3.7% over this fiscal year.
The Democrat told lawmakers he wants to further streamline key state government processes, overhaul economic development programs, and invest more in workforce development.
Lamont used his state-of-the-state address to urge lawmakers to take a more positive outlook after several tough budget years and a slow economic recovery from the last recession.
In an address dotted with optimism, the governor said "Connecticut, we got our mojo back."
"No more badmouthing the state of Connecticut," he said. "This is an amazing state. The rest of our country is looking at Connecticut in a new light, and so should you.
"I know we have a long way to go, but we are making significant progress."
Corporate Tax Surcharge
Lamont proposed making the temporary 10% corporate income tax surcharge permanent. The surcharge was first levied in 2009 as a temporary, three-year measure.
"The governor feels very strongly that we should not make promises we cannot afford," budget director Melissa McCaw said.
The tax will generate $22.5 million of the $40 million net revenue increase contained in the second year of the $43 billion biennial budget.
Lamont's proposal includes $122 million in additional spending on top of the $40 million tax increase.
While the $22.5 million is just a fraction of the overall budget, it sends a clear—and wrong—message to businesses, CBIA president and CEO Joe Brennan said.
"The single word that comes up the most when talking about tax policy is predictability," Brennan said.
"It does not help when we continue to talk about predictability and some form of stability around tax policy that these moves to eliminate taxes are delayed longer and longer."
Capital Base Tax, R&D Credits
Lamont also wants to postpone phasing out the state's capital base tax to 2026, rather than 2024.
That will allow the state to collect another $5.7 million. Few states levy the tax, which works as a powerful disincentive to startup companies.
In addition, the budget plan limits the carry forward of research and development tax credits earned after January 1, 2020 to 15 years, further minimizing an important incentive for attracting and retaining businesses.
The governor also proposed a fee on credit card transactions individuals or businesses conduct with the state to generate about $5 million.
He did call for canceling $50 million in scheduled fee increases on small businesses, mostly licensing and filing charges.
The budget adjustments anticipate an end-of-year surplus of around $153 million, boosting the state's largest-ever rainy day fund surplus to about $2.8 billion.
Brennan welcomed the tone of Lamont's address while noting the administration's economic development proposals warranted a closer look.
"To a large extent, a lot of what they want to do with economic development strategy is positive," Brennan said.
"However, we will still need to determine how small businesses will be impacted by it because Small Business Express is changing, and Manufacturing Assistance Act dollars are changing, so we want to make sure we remain competitive with other states.
"A lot of this is going in the right direction. We just have to avoid the things that add on new costs and mandates to employers."
Lamont wants to revamp the nine-year-old Small Business Express Program, which gave loans to small businesses at a time when banks were reluctant to make those loans.
The program will now partner with—not compete against—banks to focus resources on training, mentorship, and capital access for businesses owned by women, minorities, veterans, and the disabled.
The governor also calls for using performance-based incentives to get businesses to relocate here or expand.
In the past, the state would provide funds to companies that promised to create or maintain a certain number of jobs.
Under the administration's plan, businesses must first create jobs before qualifying for tax breaks.
Businesses that create at least 25 jobs over a two-year period, with salaries at least 85% of the median household income for the municipality where the job is located, will receive tax credits.
Jobs must be in designated sectors that include aerospace, clean energy, digital media, and financial services, and these businesses will receive 25% of the new withholding taxes generated, or 50% if located in an opportunity zone.
The program is capped at just $40 million a year.
Lamont said Department of Administrative Services Commissioner Josh Geballe "will soon roll out a one-stop process for businesses" that would otherwise have to visit various state agencies to register.
"I promised last year that you would be spending more time online, not in line, and we are just getting started," Lamont said.
He also said that an expected "tsunami of state employee retirements" over the next few years will allow the administration to downsize state government by centralizing efforts and personnel.
"We see this as a great opportunity to cut costs by using technology to deliver state services," Brennan noted.
Lamont, a successful former entrepreneur, said one of his top priorities is to "reset our state's relationship with the business community."
The governor said he's visited more than 100 businesses since taking office, from giants like Electric Boat, which employs over 12,000 people in Connecticut, to small startups.
"I love getting to know these businesses, know their employees, what they proudly build every day, and what they need in order to keep calling Connecticut home," he said.
Lamont said he also wants to set income limits for the debt-free community college program, consider legalized sports betting, and work with neighboring states to legalize marijuana.
He also pressed lawmakers to approve trucks-only tolling on state highways, calling it "the elephant in the room."
Wall Street is noticing the state's improving finances, Lamont said.
"Three years ago, the credit agencies downgraded our state," he said.
"The rating agencies and the investors, they've upgraded the outlook for Connecticut for the first time in 18 years from neutral to positive.
"That is saving us tens of millions of dollars in interest costs."
The budget invests more in workforce development by funding an executive director and other positions in the Office of Workforce Competitiveness, and moves the office from the Labor Department to the Office of Policy and Management.
Lamont wants to place a 50% wholesale tax on electronic cigarette liquids and ban flavored vaping products.
He also called for eliminating greenhouse emissions generated by electric power plants by 2040.