State Budget: ‘Better Ways’ to Fund Governor’s Proposals
Gov. Ned Lamont proposed a $55.2 billion, two-year budget Feb. 5 that raises business taxes and weakens the state’s fiscal guardrails to fund a number of initiatives.
The tax and spending plan—the largest in Connecticut’s history—was shared with state lawmakers at a special joint session of the legislature amid growing uncertainty over federal funding.
Lamont’s proposal was also drafted without the support of federal pandemic relief funds, which helped shape the state’s last two biennial budgets.
Under his proposed budget, state spending would hit almost $27 billion in fiscal 2026—3.8% more than current levels—and jump another 4.6% to $28.2 billion for fiscal 2027.
“The last few weeks have been turbulent, and we can only guesstimate how changes in Washington will impact our budget over the next few months,” Lamont said.
“Unlike other states, which are cutting back, our budget will increase by over $1 billion in each of the next two years, all the while making a transformative investment in early childhood education and another round of tax cuts.”
Guardrails ‘Shift’
Lamont proposed a one-time weakening of the state’s volatility cap—one of the critical fiscal reforms implemented in 2017—as a means of funding an initial $300 million investment in a new Universal Preschool Endowment.
The governor said the endowment “will be a downpayment on making pre-K and early childhood education affordable and accessible for all of our kids.”
“For countless families the cost of childcare can be not only burdensome but also keep them out of the workforce,” he said. “We are building this endowment for the long term.
“With a 10% spend rate, our budget will have an additional $30 million next year, $60 million in 2027, all with the goal of providing pre-K and preschool spaces at no cost to families earning up to $100,000.”
“Expanding access to affordable childcare is critical … however, there are better ways to accomplish this goal.”
CBIA’s Chris DiPentima
Lamont defended his shift in position on the fiscal guardrails—under threat from some lawmakers despite restoring the state’s financial health—saying “we have earned the opportunity to rethink the volatility threshold.”
Changing the volatility cap requires the approval of 60% of the state legislature. Democrats currently control the state Senate 25-10, with one vacancy, and have a 52-seat margin in the House.
CBIA president and CEO Chris DiPentima, who sits on the governor’s Blue Ribbon Panel on Childcare, said “expanding access to affordable childcare is critical for employers, especially to get more women back in the workforce.”
“However, there are better ways to accomplish this goal within the budget,” DiPentima added.
‘Spending Plenty’
DiPentima applauded Lamont’s recommendation to extend the fiscal guardrails though mid-2038. Unless the legislature acts, those budget reforms will expire June 30, 2028.
“Those bipartisan reforms transformed Connecticut’s fiscal health, reversing a decade-plus, corrosive cycle of budget deficits followed by tax hikes followed by more deficits,” he said.
“The fiscal guardrails are positioning Connecticut to best address its biggest challenges, providing much-needed stability, certainty, and predictability.”
DiPentima added that the reforms freed up $738 million in spending for fiscal 2025 and that without the guardrails, state spending would likely have increased by more than $10 billion between 2021 and 2025.
“Connecticut is already in the top three states in terms of per capita state government spending—almost two times the national average,” he said.
“We’re spending plenty. Our budget is almost the same size as North Carolina’s, yet we have a third of the population.”
DiPentima referenced Lamont’s Jan. 8 state-of-state address, when the governor called for overhauling state government operations, telling lawmakers that “I’ve never been satisfied with the status quo and you shouldn’t be either.”
“We have a longer legislative session this cycle, giving us an opportunity to get in the weeds, lift up the hood, not always arguing about more money, but better results—not just more, but better,” the governor said.
DiPentima said policymakers have an existing, taxpayer-friendly blueprint for freeing up additional revenue, with the 2021 CREATES Report identifying between $600 million and $900 million in annual savings.
Lawmakers are considering legislation implementing the report’s recommendations, many of which a spokesperson for the governor said Lamont supports.
“While still a concept bill, a lot of the initiatives and ideas laid out in the original CREATES report are supported by the governor and have even been implemented already, such as measures to reduce cost and improve the quality of service,” communications director Rob Blanchard told the Hartford Business Journal.
Taxes, Licensing Fees
The governor’s business-related budget proposals—which range from expanding the bioscience research and development tax credit to eliminating the unitary tax cap—drew a mixed reaction from the business community.
Positive recommendations proposed by Lamont include:
- Increasing the bioscience R&D tax credit reimbursement percentage from 65% to 90%, making the sector more competitive
- Accelerating the elimination of the capital base tax from Jan. 1, 2028 to Jan. 1, 2026, encouraging greater entrepreneurship and investment in early stage companies in Connecticut
- Eliminating occupational licensing fees in high-demand trades, including nurses, dental hygienists, mental health clinicians, occupational therapists, paramedics, physical therapists, electricians, plumbers, HVAC technicians, sheet metal workers, and teachers, helping address the labor shortage
The governor also proposed:
- Eliminating the $2.5 million cap on unitary combined tax liability reporting, hiking taxes on companies by $216.3 million over two years
- Extending the so-called “temporary” corporate tax surcharge—set to end after fiscal 2025—for another three years, costing businesses $128 million over two years
- Cutting the net operating loss carryforward for companies with $6 billion or more in cumulative losses in half, leading to $8.3 million in tax increases over two years
- Reducing the top film production tax credit rate from 30% to 25%, resulting in a $26.3 million two-year tax hike
- Restructuring the hospital provider tax, costing hospitals an additional $140 million in taxes in fiscal 2027
While DiPentima emphasized that the Lamont administration and lawmakers were at the “very beginning” of a budget process that likely will last into June, “it was important to set the tone for that process.”
“The governor for several years has said he wants more taxpayers, not more taxes, and has really stood shoulder-to-shoulder with the business community and other organizations to protect the guardrails,” he said.
“And here, at the start of the budget conversation, he’s opened up the door on both those things.”
For more information, contact CBIA’s Chris Davis (860.244.1931).
RELATED
EXPLORE BY CATEGORY
Stay Connected with CBIA News Digests
The latest news and information delivered directly to your inbox.
CBIA IS FIGHTING TO MAKE CONNECTICUT A TOP STATE FOR BUSINESS, JOBS, AND ECONOMIC GROWTH. A BETTER BUSINESS CLIMATE MEANS A BRIGHTER FUTURE FOR EVERYONE.