When Ned Lamont first pledged to deliver $375 million in annual property tax relief to poor and middle-class households, his back was up against a wall.
It was August 2018, and the Democratic gubernatorial nominee’s GOP rival, Bob Stefanowski, was making headlines promising the near-fiscally impossible: elimination of the state income tax.
Insisting Stefanowski’s pledge to wipe out half of all budget revenue — more than $9 billion annually — was fraudulent, Lamont countered with something only 1/25th in size: increasing the state income tax credit that reimburses low- and middle-income households for a portion of their annual municipal property tax bills.
“From Middlebury to Middletown and Norwalk to Norwich, people in Connecticut feel squeezed,” Lamont wrote in an August 2018 campaign position paper titled “A property tax cut for the middle class.”
Lamont added that “after three decades of mismanagement by governors of both parties, our budget hole remains deep and Connecticut’s working families are being asked to pick up more of the tab. It’s unfair, it’s unproductive, and it needs to change. Connecticut’s middle class needs and deserves a break.”
But it doesn’t appear that a break is anywhere on the horizon.
Although the time to deliver on this promise is fast approaching – Lamont’s budget proposal is due in two weeks — his administration is hinting that it won’t be delivering on property tax relief, at least not as it was initially presented.
“The governor’s promise was always predicated on growing the tax base, and an increased pool of General Revenues growing over the course of the first fiscal year of his administration,” Max Reiss, Lamont’s communications director, told the CT Mirror late last week. “For this to become a reality, the state needed every external economic factor to break the right way. The governor, consistent with his fiscal stewardship, was not going to let a campaign promise get in the way of sound fiscal policy that protects all taxpayers, especially the middle class.”
To keep his word, the governor would have to deliver $165 million in new property tax relief in the budget he will present to legislators on Feb. 5. Lamont also pledged to end a restriction barring low- and middle-income taxpayers from receiving the grant unless they had children or older than 65.
The rest of the relief — about $210 million — is due in the biennial budget for the 2021-22 and 2022-23 fiscal years, which Lamont will propose a year from now.
“If your household earns up to $160,500 a year, you’ll qualify for relief from property taxes paid on your home or your car,” Lamont wrote in 2018, adding that “900,000 taxpayers in homes with more than 2 million Connecticut residents would see a benefit.”
Promises meet reality
Lamont faces a small deficit this fiscal year, and he and lawmakers have already raised taxes and fees by more than $330 million last spring to balance Connecticut’s books.
On the other hand, state finances have actually improved since August 2018.
Though significant deficits still are projected for the third and fourth years of his term — when the bulk of the promised tax relief is due — the gaps are much smaller than when Lamont made his property tax relief promise. Nonpartisan analysts say state finances, unless adjusted, will run $1 billion in deficit in 2021-22, and $1.4 billion in 2022-23. In August 2018, the outlook for those same years had $3 billion and $3.4 billion shortfalls projected, respectively.
Surging state income tax receipts, particularly those involving capital gains and other investment-related income, are a big part of the relatively rosier outlook. That trend has also doubled the state’s budget reserve since Lamont took office, and it now holds a record-setting $2.5 billion.
Still, when he was a candidate Lamont brushed aside as a non-obstacle the $3 billion-plus deficits he would inherit during his first two years in office. He particularly noted that the first phase of his property tax relief plan, costing around $165 million, was only “around just 1% of the most recent annual state budget” and therefore manageable.
Lamont added at the time that his plan would grow in 2021-22 and the year after that. Income limits on the tax break would be broadened, and a special “targeted” credit would be established for poor families who spend at least 6.5% of their annual income on property taxes.
The average property tax credit would swell to $700, with some households getting as much as a $1,200 break annually on their state income tax refunds.
And to top it off, Lamont would expand a state-funded municipal property tax relief program for elderly renters.
Now it’s unclear what — if any — of this tax relief state residents will receive.
Feet to the fire
The top House Republican on the legislature’s tax-writing panel said Connecticut voters have not forgotten the Democratic governor’s campaign pledge. And after absorbing a broad array of tax hikes last summer — including an expanded sales tax, a prepared meals surcharge, a new fee on plastic bags and various business tax hikes — skepticism about any impending tax relief is growing, said Rep. Chris Davis of Ellington, ranking House Republican on the Finance, Revenue and Bonding Committee.
“The people of Connecticut are feeling tapped out,” Davis said. “And despite what they were told less than two years ago by candidate Ned Lamont, they didn’t get the relief they were promised. It is not surprising to me, but he certainly appears to be going back on his word.”
Republican legislators largely were quiet in 2018 as Stefanowski, a Madison businessman, said he could phase out the state income tax in eight-to-10 years.
Without income tax revenues, all other resources — sales tax, corporation tax, other taxes and fees, federal grants, gaming revenues — would barely be enough to cover debt costs, Medicaid and employee fringe benefits.
State employee payroll, a $3 billion municipal aid program, operating grants for public colleges and universities and a major chunk of community-based social service programs would be out of luck.
One of the co-chairs of the finance committee, Sen. John Fonfara, D-Hartford, said Connecticut should not commit to any tax relief that it cannot sustain. In other words, don’t adopt it unless you’re confident the budget can support it year after year.
But Reiss noted that even amidst a difficult budget year in 2019, Lamont and legislators approved a paid family and medical leave program and a multi-stage effort to boost the minimum wage to $15 per hour by October 2023. It also implemented new income tax cuts for retirees.
There was also an approved phase-out if income tax on social security income, putting more money in seniors’ pockets as well as veterans and first responders.
Republican critics counter that Connecticut workers are paying for the leave program with a new payroll tax, and that businesses will foot the bill for the wage hike.
If Lamont expects it will be difficult to deliver the first phase of the tax relief program he proposed, is he any more optimistic he can deliver the rest in the second half of his term? The administration didn’t respond to that question.
But Reiss insisted the governor remains sensitive to the tax burdens low- and middle-income families already bear in Connecticut.
“The governor remains committed to holding working families harmless during difficult budget times,” Reiss said, “a charge he takes seriously.”