Gov. Ned Lamont proposed state budget spending increases for the current and pending fiscal years totaling more than $2 billion during his opening day General Assembly speech Feb. 9.
He also proposed tapping hundreds of millions of dollars from the current year surplus, shifting federal COVID relief funds and boosting total spending across both years by 10% while navigating around the state's statutory spending cap.
"Three years ago, I said I wouldn’t let the state be defined by a constant fiscal crisis," Lamont told a joint session of the legislature.
"Budget deficits have become record-breaking surpluses, our budget reserve fund is now overflowing, and we are able to pay down our pensions, borrow more money at less cost—and return millions of dollars to middle-class families."
The proposed budget adjustments largely target additional spending for social services, healthcare, and education programs.
Lamont's budget adjustments also include a $336 million tax package directed at property tax relief and accelerating the planned exemption of pensions and annuities from the state income tax.
Small Business Support Missing
CBIA president and CEO Chris DiPentima said while the governor's budget adjustments provide some relief for individual taxpayers, "that’s only part of the prescription for rebuilding the state’s economy."
“Connecticut’s economic recovery depends on the health of our small businesses, and these budget proposals do not offer nearly enough support for smaller employers, too many of whom are struggling.
“Small businesses desperately need help addressing the labor shortage, inflation, pending tax hikes to pay off the state's unemployment fund debt, and numerous other challenges—that’s where policymakers must focus this session."
DiPentima said policymakers can send a "strong message" to struggling small businesses by allowing them access to the manufacturing apprenticeship and R&D tax credit programs and providing targeted tax relief.
"Why does the state levy sales taxes on workforce training programs?" he asked. "Why are smaller employers shut out of tax credit programs that would help them find and train workers?"
"The labor shortage is the biggest threat to our economic recovery and these proposals don't go nearly far enough to addressing that, especially for small businesses."
DiPentima noted that while the governor wants to expand a tax credit for employers that contribute to employee student loan payments, few small businesses qualify for that program, available only to C corporations and businesses that pay the insurance premium tax.
He welcomed the governor's proposals to make additional investments in workforce development programs and modernize and streamline state government services.
“However, we are concerned with the proposed use of one-time federal COVID-19 relief funds to increase the size and scope of government in other areas—that’s unsustainable, particularly when considering looming budget deficits after next year," DiPentima said.
DiPentima said policymakers must use Connecticut's strong near-term fiscal health to address the state's slow job growth and shrinking labor force—a challenge that predates the pandemic—and stimulate economic growth.
He cited the looming tax hikes Connecticut businesses face to pay off the near-$1 billion in federal loans used to bail out the state's unemployment fund during the pandemic.
“The tax and spending choices we make over the legislative session will determine the long-term strength and viability of Connecticut’s economic recovery and job growth,” DiPentima said.
“Policymakers have a one-time opportunity to get things right and must use the state's current fiscal health to make targeted investments to resolve the labor shortage, grow the economy, and modernize state government."
Budget Adjustment Highlights
- Re-appropriate $810 million in federal COVID relief funds for other state uses in fiscal 2022 while allocating $945 million in federal funds to fiscal 2023
- Deposit $462 million in budget reserve fund
- Allocate $305 million across various state agencies for collective bargaining adjustments
- Additional $15 million for CareerConnectCT workforce program
- $64 million for salary increases at Connecticut State Colleges and Universities, University of Connecticut, and University of Connecticut Health Center
- $11 million dual enrollment program to boost career and college readiness
- $30 million for enhanced temporary Department of Labor staffing
- $50 million for affordable housing programs
- $42 million for earned income tax credit program
- 269 new state agency positions to support implementation of federal Infrastructure Investment and Jobs Act funding
- $23 million for MetroNorth rail car 5G upgrades and $4 million for new express train service
- $5 million for free summer bus services
- $25 million to enhance outdoor recreation and park visitor experience
- $4.5 million in continued support for modernizing Department of Revenue Services tax filing systems
- Restore property tax eligibility to current income limits of $109,500 for single filers and $130,500 for joint filers and increase the credit from $200 to $300 ($123 million)
- Accelerating the phased exemption of pensions and annuities from the income tax from 2025 to 2022. Single filers with adjusted gross incomes below $75,000 and joint filers with less than $100,000 qualify.
- Lower the cap on motor vehicle property taxes to 29 mills and reimburse local governments $160 million for the projected loss in revenue
- Expand the 50% tax credit for employers that pay up to $5,250 toward an employee's student loans ($9.4 million)