Courtesy of Brian M. O'Connor

With more than $6 billion tucked away in Connecticut’s rainy day fund, Gov. Ned Lamont called for the state’s largest tax cuts since the creation of the state income tax in 1991 in his biennial budget address.  

Speaking within the House chamber of the Connecticut General Assembly on Wednesday, Lamont laid out a $50 billion dollar budget that will lower the tax rates for families making less than $150,000 while also increasing the state’s contribution to school districts by $135 million.

While Lamont announced spending increases, progressive legislators and activists argue that the state is not spending enough to deal with affordability and education crises across the state. 

“My primary goal for the next two years is driving growth,” Lamont said in his speech. “We continue to move from rescue to recovery, lifelines to ladders to opportunity. None of this would be possible if not for our collective hard work over the last four years which is the foundation of our next chapter of growth and opportunity for all.

The budget allocates $25 billion for spending for the fiscal year beginning on July 1, which is a 3.5 percent increase in spending from the current fiscal year. The budget allocates $25.5 billion for the 2024-2025 fiscal year, which is an additional 1.8 percent in spending. 

The budget will now be debated and amended by the state’s appropriation committees to be passed by June. 

While Lamont touted the budget as a means of fighting income inequality and improving residents’ economic situation, Recovery for All CT, a coalition of unions, organizers and faith groups in the state, argue that decisions to maintain budgetary controls without increasing funding to programs or increasing taxes on the rich make the budget ineffective. 

“Instead, this proposed budget does not live up to the promise of equity that Section 92 demands–threatening to continue the decades of bad policy choices that have made Connecticut ground zero for the most extreme racial, economic, and gender inequities in the country,” Recovery for All CT Executive Director Puya Gerami GRD ’23 told the News. 

1.1 million tax filers to receive tax relief under tax reduction

Lamont announced on Wednesday that his budget proposal includes a lowering of the 3 percent income tax on the first $10,000 of income to a 2 percent rate while income under $50,000 would see a cut from the current 5 percent to 4.5 percent. 

This cut is projected to save taxpayers $440 million annually according to the Governor’s office. Of the state’s 1.7 million tax filers, roughly 1.1 million will receive up to $300 in tax relief with this plan. 

On top of the general tax cut, Lamont also included a Earned Income Tax Income expansion that has been pushed for years by progressive legislators, including State Rep. Anne Hughes. The new increases in the EITC would raise the tax-credit rate from the current 30.5 percent to 40 percent. 

“The EITC is one of the best anti-poverty tools we can use because it encourages work, boosts working families, and uplifts generations to come,”  Lamont said on Wednesday. “It’s about time that we increase it.”

Under the proposed expansion, families earning less than $50,000 a year will pay no state income tax while families earning $60,000 will receive a 20 percent tax cut. If a family has an income lower than $150,000, the EITC will provide them a 6.5 percent tax cut worth roughly $500. 

The rate increase is projected to provide an additional $44.6 million state tax credits to roughly 210,000 qualifying low income households. 

While Hughes believes that these measures are important steps forward, she added that the state should also pursue the state’s “highest tax evaders” who she said avoid paying taxes and cost the state almost $125 million per year. 

“We’re totally enthusiastic about the Earned Income Tax Credit but it’s not enough,” Hughes told the News. “We’re going to be pushing for the child-tax credit and also for raising revenues on capital gains and top income tax earners but Lamont has clearly said he’s not going to do that.”

While progressives in the state have called for these tax increases, Eric Gjede, vice president of public policy for the Connecticut Business Industry Association, told the News that such increases would be “absolute job and business killers” that would make doing business more difficult in a state where “doing business is already difficult.” 

Lamont’s budget plan does include the reimplementation of pass-through-entity taxes for small businesses to avoid state tax deduction limitations imposed by the 2017 federal tax cuts. 

Similar to the SALT tax deductions for property taxes that was capped at $10,000, small businesses were also not allowed to deduct more than $10,000 from their federal taxes for state income taxes that they passed. 

Additionally, Lamont is calling on the state legislature to enact a 25 percent tax credit for large corporations to open childcare centers on site. 

“This budget proposal for one of the richest states in the richest nation in the world does not require our wealthiest corporations and earners to contribute what they own to fund the future of our communities even while working families still contribute a much greater share of their income for the programs and services we all rely on,” Geram told the News.

Education Cost Sharing funding to increase by $135 million 

With school districts across the state struggling with lower-than-expected test scores, chronic absenteeism and teacher retention issues, Lamont plans on spending an additional $135 million on education over the next two years. 

The budget will also add an additional $10 million in grants to assist municipalities and districts with addressing staff shortages. This includes apprentice programs and strengthening earning-while-you-work programs for teachers.

To combat absenteeism, the budget includes $7 million for the LEAP program where counselors knock on doors to help increase student attendance. 

“The state of many of our schools are abysmal and this doesn’t even come close to giving the full funding they need to thrive,” Hughes told the News. “I’m very concerned about the stress being placed on municipalities. $135 million is modest … we should accelerate the formula right now and fully fund PILOT, but we can’t do that with the budgetary control we need flexibility.” 

The state legislature will vote tomorrow to extend free lunch for all students through the end of the current school year to incentivize attendance.

Lamont presses cities and municipalities to address housing 

During his budget address, Lamont called on city and local governments to create actionable plans on developing multi-unit and affordable housing in the state. 

“I will also urge mayors and first selectmen to develop and act on a plan of their own where they will allow more housing in their community through friendlier zoning and expedited approvals,” Lamont said. “Towns may submit their plans to facilitate housing on their terms. Doing nothing is not an acceptable strategy.” 

Lamont also touted the expansion of the time-to-own program by $50 million each year. Under this program, residents who can gather half of a down payment will receive a forgivable loan for the other half. 

Gerami pointed to a spike in rents across the state with rents increasing by 20 percent per year for the last two years on average. Across the state, more than 50 percent of Connecticut residents spend more than 30 percent of their income on rent. According to Hughes, the state needs to invest in building more affordable housing units with the current surplus funding. 

Gerami told the News that the Recovery for all CT coalition which includes the AFL-CIO, AFT, and New Haven Rising has thrown its support behind Senate Bill 138 which would limit state-wide rent increases to 2.5 percent per year. 

Lamont solidifies budgetary controls through 2032 

Prior to 2017, Connecticut faced high volatility in its expenditures since a large portion of the state’s tax base comes from Connecticut residents who work in stock-related industries. Thus, when there are economic downturns, Connecticut’s tax revenue shrinks at a rate higher than most other states.

The 2017 budget strengthened the rainy day reserves and the fund currently sits at $3.2 billion which could fully fund the state government and services for roughly 70 days. 

On Tuesday, Lamont announced that he and both the senior Republican and Democratic legislative leaders had agreed to a continuation of the same budgetary control through 2032.

“This agreement locks us in too far into the future,” State Representative Anne Hughes told the News. “We don’t know what the landscape will look like and we need more flexibility to fund services now … we are facing a critical workforce crisis, a care workforce crisis. I don’t think we can count on the federal government saving us from that, and we need to spend the money now.” 

The agreement limits the values of state bonds that can be issued to finance municipal projects to $1.9 billion per year. It also restricts legislators from increasing spending by more than $3.2 billion during any quarter. 

The 15 percent cap on general funds saving that currently exists will also be raised to 18 percent. 

“I think it’s a balance and we’re trying to address their concerns,” Scanlon told the News. “We’re not going to make the mistakes of the past by continuing just to say, Oh, look, we have a huge surplus. Let’s spend it on all these problems. They’re well intentioned but that was what got us into a fiscal crisis and therefore resulted in us spending even less money on some of those services because we had to make very difficult cuts during the Malloy years to scale back those programs.” 

Where does the budget go next?

State appropriators will now debate the budget for the next three months adding legislative text and hammering out details from the top-line vision laid out by the governor. 

“We are encouraged by the values put forth by the governor in this budget and look forward to working with him over the coming months,” Senator, President Pro Tempore and New Haven legislator Martin Looney told the News. “The General Assembly’s Appropriations and Finance committees will now begin their process of crafting the legislature’s budget proposal determining the best ways to support Connecticut’s working and middle class families.”

The state legislature sits in Hartford from January to June in odd years where the budget is debated.