(February 11, 2021) Gov. Ned Lamont released his biennial budget proposal to close a $2.5 billion deficit, which relies on a mix of federal aid, a continued delay of sales tax revenue for municipal grants and maintaining some taxes that were set to expire.
The budget also includes legalizing online sports gambling and recreational cannabis, but those measures – if enacted by the legislature. Legalized cannabis is estimated to bring in $32 million in 2023 and legalized gambling $47.3 million.
Much of the governor’s budget fix relies on expected federal aid. However, if those federal funds do not materialize, the governor proposes tapping the state’s reserve fund, upwards of $1.7 billion.
One of the largest revenue saving moves would be delaying a $377 million sales tax transfer to the Municipal Revenue Sharing Account in 2022 and 2023. The MRSA is set aside to provide grants for municipalities, but the program has never actually received those funds.
The budget also earmarks an additional $100 million for Connecticut’s 25 distressed municipalities and a portion of future cannabis tax revenue will also be diverted to municipalities in which marijuana laws have adversely affected their residents.
The governor factors in nearly $135 million in estimated efficiency savings through streamlining services with online technology, combining offices to limit state real estate and save on operating costs. The governor expects up to 8,000 state employees to retire before fiscal year 2022.
The budget included a freeze on general wage increases for state employees. State employees received their second 5.5 percent wage increase in 2020 during the pandemic. The administration is currently in negotiations with state labor unions.
However, the budget is not without some increased costs.
Lamont extends the amortization of the unfunded state employee pension liabilities by an additional three years, saving roughly $100 million in the short term but adding costs onto taxpayers in the long-run.
During his budget address, Lamont acknowledged Connecticut’s fixed costs like pension liabilities continue to grow, saying “the Connecticut budget is still burdened with high fixed costs accumulated over the decades, and these costs plus a COVID economy result in deficit projections in each of the next two years.”
Lamont would also implement a weight-based fee on tractor-trailer trucks in the state, upwards of $20 per truck to raise $90 million per year, according to budget presentation by Office of Policy and Management Secretary Melissa McCaw, part of Lamont’s effort to shore up the Special Transportation Fund.
Lamont also renewed his commitment the Transportation and Climate Initiative, which requires gasoline producers and distributors to purchase allowances based on emissions.
The proposal is estimated by TCI to raise the price at the pump between 5 and 17 cents per gallon, although McCaw said she is unsure if companies would pass the allowance costs onto drivers and said gas prices would only increase between 2 and 5 cents.
The initiative is projected to raise between $80 and $100 million per year, but a portion of those funds would be directed to cities to aid in climate justice.
Joseph Sculley, president of the Motor Transport Association, said it was “disheartening” that Lamont is targeting the trucking industry again after trying to implement tolls on trucks in 2019.
“The workers in an industry that he himself declared “essential” have been among the heroes of the COVID-19 pandemic, bringing vaccines, medications, hospital equipment, and groceries to locations all across the state,” Sculley said in a press release. “Now, the Governor wants to reward them by assessing a discriminatory new tax.”
He also questioned the true cost of the TCI program in the form of higher gasoline costs and said it “will impose a new self-raising gas tax on Connecticut residents and businesses, under a program that will have no transparency or accountability.”
Senate and House Republicans responded to the budget with a press conference, labeling the budget as a “multiple choice quiz” for the legislature to plug the deficit that lacks “bold choices,” and doesn’t address the damage inflicted on the restaurant and hospitality industry due to the pandemic.
“The governor has given the legislature the choice of closing the budget deficit by either choosing economic growth, federal funding or use of the rainy day fund,” House Republican Leader Vincent Candelora, R-North Branford, said. “I find it a bit disappointing that we don’t see more specifics being offered with such a significant portion of our budget deficit.”
“The governor did not do the job he is required to under the constitution which is provide a balanced budget where you can identify and point to an exact revenue stream,” Senate Republican Leader Kevin Kelly, R-Stratford said. “There is no relief from a tax perspective for the middle-class.”
The Republican leaders also criticized the freezing of Education Cost Sharing grants, the fees on trucks and the Transportation Climate Initiative.
But Lamont may face a much larger challenge from the progressive wing of his own party, as House and Senate Democrats have been pushing hard for increasing taxes on Connecticut’s high-earners in the form of higher income taxes, capital gains taxes and property taxes.
During her budget presentation, McCaw told reporters that Connecticut values its investors and hedge funds and that now was not the time to make changes to the tax code.
Connecticut’s projected revenues experienced a turn-around since the early days of the pandemic, with revenue from financial gains on Wall Street and income taxes fueling a budget surplus in 2021 – a trend the governor hopes will continue over the next two years as the COVID-19 vaccine is made more available.
According to future projections, Connecticut will face another biennial budget deficit of $3.1 billion in 2023 and 2024.