Lamont’s Budget Proposal Reflects No Tax Hike Pledge
Governor Lamont announced his two-year, $46 billion budget proposal Wednesday.
The proposal closes a projected $4 billion deficit while increasing state spending by 2% in fiscal year 2022 and 3.5% the following year.
Lamont’s budget avoids broad-based tax hikes, as he pledged to business leaders Jan. 22 at CBIA’s Economic Summit + Outlook.
The budget proposal makes no changes to the state’s income or sales and use taxes and relies heavily on two revenue sources—increased federal stimulus funding and delays to previous tax policies.
“We don’t need more taxes, we need more taxpayers,” Lamont said in his Feb. 10 budget address.
“With our continued success in streamlining state government, we have reduced projected deficits to less than $1 billion annually, which will be balanced by either a gradually growing economy, state and local aid from Washington, or a partial drawdown from our $3.5 billion rainy day fund.”
CBIA president and CEO Chris DiPentima said many of the administration’s budget proposals aligned with the organization’s Rebuilding Connecticut policy recommendations, including “expanding workforce development opportunities to get people back to work, investing in our hard-hit urban centers, and supporting struggling small businesses.”
“We appreciate that the Governor’s budget proposal ignored calls from progressive lawmakers for more than $4 billion in tax hikes on residents and businesses,” DiPentima said.
“Recovering from the coronavirus pandemic is the first step to growing Connecticut’s economy.
“It requires collaboration between Democrats, Republicans, the private and public sectors—we’re all in this recovery together.”
The budget relies on $775 million in federal dollars in fiscal 2022 and $975 million the following year.
Federal stimulus funds are expected to be less restrictive than prior rounds of funding, allowing the governor to maintain education and municipal funding.
Should the federal government withhold all or part of this funding, Lamont intends to use a portion of the state’s historically high $3.5 billion rainy day fund.
“Closing budget deficits through economic growth—not relying on unknown federal funding or draining a historically high rainy day fund—is sustainable, scalable, and will prevent the continuation of plugging unsustainable budgetary holes in the future,” DiPentima said.
“To that end, it is critical that lawmakers support the private sector during these challenging times by reducing mandates and refraining from making it even more difficult to create jobs and drive economic growth.”
The budget proposes a number of tax policy changes impacting businesses, including permanently extending the 10% corporate surcharge originally imposed as a temporary measure in 2009.
It also delays and extends the elimination of the capital base tax until fiscal 2028, and limits the carry forward of new research and development tax credits to 15 years.
CBIA vice president of government affairs Eric Gjede said the organization will continue pushing for repealing sales taxes on safety apparel and employee training programs and restoring the pass-through entity tax credit to its original 93%.
“Businesses, particularly small businesses, need help with the high costs that come with navigating the pandemic,” Gjede said. “And we need to do all we can to alleviate the skills shortage that’s impacting a number of sectors such as manufacturing.”
The budget includes two notable new tax policies—the legalization of recreational cannabis, and sports betting and online casino gambling.
In fiscal 2023, the proposed first full year of sales, marijuana is forecast to generate $33.6 million in tax revenues.
The Governor’s proposed budget protects employers’ rights, allowing them to maintain drug-free workplaces with the ability to take employment action against any employee impaired at work.
CBIA supports this critical component of recreational cannabis policy.
The Special Transportation Fund remains a challenge for lawmakers who continue to grapple with the fund’s pending insolvency and the state’s aging infrastructure.
The Lamont administration proposes two policies to generate revenues for the fund: the Transportation Climate Initiative Program and the Highway Use Tax.
In December, Lamont joined his counterparts in Massachusetts and Rhode Island, and the mayor of Washington, in signing a memorandum of understanding supporting TCI-P.
The program is forecast to generate $24.3 million in fiscal 2023 from allowances from fossil fuels which would then be used to fund clean transportation projects.
HUT is a mileage-based tax on heavy weight vehicles and would be used to fund safety, traffic congestion, and various projects. That tax is estimated to generate $45 million in fiscal 2023, its planned first year.
CBIA supports transportation infrastructure investments, but a successful plan cannot be developed without bipartisan support. CBIA urges lawmakers to explore all funding options, including the creation of a priority project plan and leveraging public-private partnerships.
Spending proposals are anchored in five primary concepts: defeating COVID-19, making Connecticut more affordable, investing in the state’s future, modernizing state government, and expanding economic opportunities.
The budget prioritizes the streamlining of state services by implementing broad based technology solutions and cutting duplicative functions through the Cliff Retirements adding Efficiency, Accountability, and Technology to Economize State Government Program.
The CREATES program is projected to save the state $20 million in fiscal 2022 and $115M the following year through agency expenditure reductions and the closure of certain units and facilities.
The budget provides approximately $465,907 annually to the Office Of Workforce Strategies led by Kelli Vallieres, Connecticut’s first Chief Workforce Officer.
In addition to anticipated bond funding, this office is designed to focus on aligning state programs with the economy’s labor demands of the state.
Lamont will also submit legislation that tailors workforce development programs to in-demand sectors as outlined in the Governor’s Workforce Council 2020 Strategic Plan.
The budget neglects to provide additional funding to nonprofit providers who support critical state services.
CBIA supports additional funding to many of the nonprofit groups who have not seen an increase in funding despite increased costs due to normal inflation and COVID-19.
CBIA also supports the administration’s proposals to streamline professional licensing and remove barriers to entry through reciprocity with other states.
With 25% of the workforce requiring a license, CBIA strongly supports efforts to simplify the licensing process and welcome skilled workers with equivalent out-of-state credentials.
Urban Renewal, Healthcare
The budget looks to assist urban areas with $100 million in extra funding for 25 cities and towns, plus future funding from revenue generated by legalizing recreational cannabis.
The Governor’s budget addresses the cost of healthcare by funding the Office of Healthcare Strategies with an additional $6 million per year to continue efforts that will inform benchmarking and cutting the cost of healthcare.
Lamont also announced a new Covered Connecticut Program that will generate revenue from assessments on insurers and provide premium assistance to eligible individuals seeking insurance through the state-run healthcare exchange.
While the proposed budget aligns with many of CBIA’s policy priorities, the Appropriations and Finance, Revenue, and Bonding committees will take deeper dives over the next few months and changes are anticipated.
“This budget is one of the more fiscally responsible plans delivered within the last decade,” Gjede said.
“It contains reasonable efforts to reduce the size and scope of state government, makes the transferability of occupational licenses of those coming to the state easier, and maintains the wind at the back of fiscally moderate lawmakers just beginning their own budget negotiations.”
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