State Budget: Winners and Losers
The General Assembly adopted a $24.2 billion state budget package in the final days of the legislative session built on the state’s historic $4.8 billion surplus and federal pandemic relief funding.
Lawmakers largely built on Gov. Ned Lamont’s tax relief package that he proposed on the opening day of the 2022 session.
The budget revisions, which include $330 million in temporary individual tax relief and another $270 million in recurring cuts, is an election year effort to address voters’ concerns with inflation in the run up to the November elections.
The budget revisions increase state spending 6.5% above the current fiscal year, with new funding for state employee salary increases and bonuses, childcare, mental health, workforce development, and social services.
There is little in terms of tax reductions for businesses to stimulate the state’s economic recovery and prime it for long-term, sustainable growth.
Tax Relief Measures
The tax relief measures include:
- Restoring property tax eligibility for individuals 65+ to current income limits of $109,500 for single filers and $130,500 for joint filers and increase the credit from $200 to $300 (Section 412)
- 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. (Section 414)
- Lower the cap on motor vehicle property taxes to 32.46 mills and reimburse local governments $100 million for the projected loss in revenue (Section 417-418)
- Expand the 50% tax credit for employers that pay up to $5,250 toward an employee’s Connecticut Higher Education Supplemental Loan Authority student loans (Section 423)
- Extending the suspension of the 25 cents-per-gallon state gas tax until November 30 to help mitigate record high prices. (Section 435)
- Providing a $250 per child tax credit, capped at maximum three children per household. The credit is reduced by a certain percentage based on the filers income (Section 415)
- Allowing pass-through entities to take advantage of the manufacturing apprenticeship tax credit (Section 429)
- Providing $40 million of relief for federal unemployment debt by reducing the state’s unemployment solvency tax for one year in an amount equal to the first year of a likely four-year increase in federal taxes. (Section 213)
Section 158 of the bill also calls for a study to be conducted by the Department of Economic and Community Development on the feasibility of allowing pass-through entity businesses to take advantage of the R&D tax credit.
While it would have been better had the proposal been fully enacted, this study will help lawmakers get a better understanding of what the proposal could cost.
Lawmakers failed to restore the pass-through entity tax credit to its original level—despite that tax generating an additional $700 million in revenue this year—costing small businesses $53 million annually.
The budget also failed to exempt workforce training and personal protective equipment from the sales tax and allow net operating loss carry forwards beyond 20 years.
Section 465 of the budget also makes minor modifications to what is reported in the Tax Incidence Report put out by the Department of Revenue Services on a biennial basis.
Further, there were some sections included in the bill that will put new deadlines in place related to property tax appeals.
Sections 473 (CBIA successfully lobbied to get a corresponding section 474 removed from the implementer) will make it more difficult and expensive for both commercial and individual taxpayers to pursue appeals of excessive property tax assessments.
Per these sections, the burden of obtaining appraisals in a 120-day period (CBIA negotiated in the finals hours of session to get this up from a 90-day period) is imposed unilaterally on taxpayers with no corresponding obligation imposed on municipalities, creating a fundamental unfairness.
The assessment being appealed is not the result of a property appraisal but the result of a mass valuation process, the quality of which can vary widely from one municipal revaluation company to another.
The original 90-day deadline was inadequate for larger, more complex commercial properties – especially given the backlog and limited number of appraisers.
In fairness, while the revenue package left the business community high and dry in terms of relief, it should be praised for maintaining adherence to the spending and revenue caps put in place during the 2017 legislative session.
A number of early proposals sought to divert a percentage of the funds that exceed the statutory cap on the rainy day fund to be used to fund various programs, like childcare, rather than continue to be used to pay down the state’s long term pension liabilities.
Ultimately, the Lamont administration urged budget negotiators to maintain fiscal discipline and worked to find alternative sources to fund those programs.
Other items receiving final passage that originated from the Finance, Revenue, and Bonding Committee include:
- HB 5473: Implements DRS’ recommendations for tax administration and revisions to tax and related statutes. A few concerns were raised about this bill that CBIA was unable to alter during the course of the session. For example, the bill imposes a cap of $5 million in interest on refunds, limits claims for refunds on closed audit periods to six months (negotiated last year between CBIA and DRS), and allows the state to “reassess” sales and use tax cases after it has already conducted an audit and issued an assessment. DRS has offered to engage with the business community on how to implement these provisions, and if they remain problematic, has offered to collaborate next session to fix the legislation.
- HB 5475: Makes minor and technical changes to the tax and related statutes.
- SB 464: Allows certain persons to file for property tax exemptions, notwithstanding certain statutory deadlines.
- HB 5406: Requires the Secretary of the Office of Policy and Management, in consultation with the DRS commissioner, to conduct a study of the revenue policies of the state.
The budget revisions rely heavily on federal funding and carry forward dollars to fund a wide range of policies.
The package includes $374 million for state employee salary increases and bonuses, part of a four-year, $1.9 billion agreement between the administration and state employee unions.
The budget increased programs under the Department of Developmental Services, Department of Social Services, and Department of Mental Health and Addiction Services, and the Office of Early Childhood through both General Fund Appropriations and American Rescue Plan Act funds.
While this budget provides additional funding for programs like Care4Kids, Birth to Three, private provider support, and other programs, CBIA is concerned about the one-time nature of the funding and the creation of a fiscal cliff in the out years—which may lead to a reduction of services.
CBIA does support the budget’s workforce development funding including:
- $4.5 million for the Workforce Investment Act
- $1.4 million for the Manufacturing Pipeline Initiative
- $300,000 for the Office of Pandemic Preparedness
- $1 million for minority teacher scholarships
- $1 million for adult education
- $2 million for bilingual education
- $170 million for the separation of the Connecticut Technical Education and Career System from the State Department of Education
- $70,000 to establish a pilot program for HVAC training within the Office of Workforce Strategy (with additional funding from already existing bond authorizations)
- $1 million for CDL training at community colleges and associated programs (ARPA)
- $100,000 for education technology training at Gateway (ARPA)
- $35 million for healthcare workforce needs at both public and private schools (ARPA)
- $150 million infrastructure match dollars (ARPA)
The budget also establishes the Connecticut Career Accelerator Program Account within OWS’ CareerConneCT workforce training program.
Additional spending of note includes:
- $67 million for private providers
- $80 million for childcare through the Office of Early Childhood
- $4.3 million for rail operations
- $111.5 for the Office of Early Childhood
- $40 million for the Roberta Willis Need-Based Scholarships
- $170 in Invest Connecticut
- $20 million in one-time stabilization grants to the Department of Developmental Services
- $15 million for the Connecticut Summer at the Museum Program
- $3.5 million in the State Department of Education for increased college opportunities through dual enrollment
- $11 million for Magnet schools to cover one year’s tuition
- $22.5 million for outdoor recreation
- $50 million for affordable housing
- $11.1 million for Department of Public Health loan repayment
- $23 million for outfitting 5G on rail cars
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