The Senate gave final approval Tuesday to a new two-year state budget that cuts income tax rates for the first time in decades, invests big dollars in local schools but also leaves big question marks around higher education and social services.
The Democratic-controlled Senate voted 35-1 shortly after 5 p.m. and a nearly five-and-a-half-hour debate. The measure, which cleared the House 139-12 early Tuesday morning, now heads to Gov. Ned Lamont’s desk for his expected signature.
The package, which spends $25.1 billion next fiscal year and $26 billion in 2024-25, boosts spending slightly less than 4% each year. And while it narrowly falls under the spending cap each year as well, it carries forward $340 million from this fiscal year’s nearly $3 billion surplus to spend in the coming biennium.
The plan also directs Lamont to find more than $316 million in savings once the budget is in force. Traditionally, governors have met these directives by limiting hiring — a prospect likely to spark opposition from labor unions and from others who contend state agencies already are badly understaffed.
Lamont, whose budget staff negotiated the biennial package with legislative leaders, said it sends a clear message: Connecticut has restored fiscal stability and is poised for economic growth.
“This was the state that, every four years, like clockwork, was raising the income tax going back to 1992,” the governor said during a mid-afternoon press conference as the Senate debated the budget. “I think today people say Connecticut, the state, is getting their fiscal house in order. One way you can see that is a significant tax cut focused on the middle class, focused on working families.”Tax cuts signal ‘Connecticut is in the game’
“I truly believe it is a pro-growth economic package that will send a signal” to families, retirees and others trying to decide whether to move to or stay in the state, said Sen. John Fonfara, D-Hartford, co-chairman of the Finance, Revenue and Bonding Committee.
The message, he added, is “that Connecticut is in the game” and committed to stabilizing government finances, paying down its debt and making life here more affordable.
Since the legislative session began in February, officials from both parties targeted the state income tax for its first rate cut in nearly 30 years.
The tax initially imposed a flat 4.5% rate when enacted in 1991, and four years later legislators created a 3% rate that’s applied to a small portion of households’ earnings.
Since then the tax generally has been amended to feature more and higher tax rates. Any income tax relief typically has come in the form of credits.
But the new budget specifically would reduce the two lowest marginal rates on the income tax. The 3% rate imposed on the first $10,000 earned by singles and the first $20,000 by couples would drop to 2%. The 5% rate imposed on the next $40,000 earned by singles and the next $80,000 by couples would drop to 4.5%.
It also would begin to phase out the tax cut for singles earning more than $105,000 per year and for couples topping $210,000.
The rate changes are expected to save many middle-class households $300 to $500 per year in the 2024 tax year, for which returns are filed in the spring of 2025.
The package also expands the existing exemption for pension and annuity earnings starting with returns filed in early 2025.
Legislators and Lamont also agreed to bolster the state income tax credit for the working poor, providing about $210 more, starting next January, for more than 200,000 households that generally earn less than $60,000.
According to the legislature’s nonpartisan Office of Fiscal Analysis, all of the income tax-cutting measures combined will save taxpayers more than $460 million per year.
“In this bill, we put our money where our mouth is,” said Sen. Tony Hwang, R-Fairfield, who praised both the tax relief and new investments in education and social services. “It’s a bill that I can go back into the community and say ‘It’s a sign of progress.’”
But Sen. Rob Sampson, R-Wolcott, who cast lone opposition vote, said the overall spending growth will harm taxpayers in the long run.
“This budget just feeds the monster that has become our state government,” he said.
The new budget also freezes the state’s diesel fuel tax for the 2023-24 fiscal year at 49.2 cents per gallon. Currently, the diesel rate is set annually on July 1 based on a formula that relies heavily on diesel fuel prices over the prior year.
But other popular tax-cutting proposals were left out of the package.
One big omission, a favorite of progressive Democrats and policy groups, involved creation of an ongoing income tax credit for families with children.
Comptroller Sean Scanlon has spearheaded this effort, pitching a credit against the state income tax equal to $600 per child, up to a maximum of $1,800 per household.
But Lamont, other moderate Democrats and Republicans said Connecticut needed to offer a more broad-based cut to assist more households. The income tax-cutting plan that was adopted is expected to benefit roughly 1 million filers.
Also left out of the budget was a Lamont proposal to reduce a state tax on about 120,000 small and mid-sized businesses that don’t pay the corporation tax, collectively saving them $60 million annually.
"Small employers can be forgiven for asking whether there are enough small business champions in the legislature who can usher through the policy changes they need to survive, compete and grow,” said Chris DiPentima, president of the Connecticut Business and Industry Association.
Not only was this proposal left out of the budget, but a 10% surcharge on the corporation tax that was supposed to expire this year was retained and continued through 2025.Local education does well, higher ed challenged to cut costs
The new budget invests heavily in Connecticut’s K-12 school districts.
An increase in Education Cost Sharing grants of $140 million over the biennium already had been approved. This budget adds more than $160 million extra on top of that.
It also includes $25 million more for special education costs and $16 million for school nutrition programs.
The budget also includes a $45 million increase in non-education municipal aid.
“This will go a long way toward restraining property taxes for residents and businesses in our 169 towns and cities, as well as maintain and enhance critical local services, most notably local public education,” the Connecticut Conference of Municipalities wrote in a statement.
The budget outlook isn’t as clear for public colleges and universities, which the legislature and governor have propped up in recent years with hundreds of millions of dollars from budget surpluses and emergency federal pandemic grants.
Lamont and Republicans have been pushing hard this year for state colleges and universities to curtail spending, arguing many of these institutions are seeing enrollment shrink and should have prepared better to live without this emergency aid.
The new budget would provide state universities and community colleges with about $630 million next fiscal year, coming from a block grant supplemented by more than $200 million in pandemic grants and surplus dollars. That effectively matches the $620 million the system received this fiscal year.
But in 2024-25, the regional universities and community colleges would be expected to get by with about $115 million less than they received in 2023-24.
Similarly, the University of Connecticut and its Farmington-based health center would receive about $20 million to $30 million less than the level needed to maintain current services in the first year of the new biennium. But the funding gap in the second year would exceed $100 million.
Both UConn and the state university system have warned that this extent of cost-cutting likely would force tuition hikes as well as faculty layoffs and larger class sizes.
Rep. Mae Flexer, D-Windham, whose district includes Eastern Connecticut State University and Quinebaug Valley Community College in Killingly, said Connecticut should be doing better for its students and their families.
“You may be getting a dollar in a tax break, but you’re getting $3, potentially, in a tuition increase,” she said.
The new budget does expand the state’s debt-free community college program to include previously enrolled students returning to college after a break.Did budget increase funds enough for social services, health care?
Another big question mark in the new budget is centered on the social services safety net and whether the increase in new funding is enough to keep it from tearing.
The package includes $53 million to provide a 2.5% rate increase in the first year of the new biennium for the community-based nonprofits that deliver the bulk of state-sponsored social services. It then maintains this funding hike in the second year.
The industry, however, was asking for much more — a 9% bump starting July 1 and then a 7% hike on top of that in July 2024. The CT Community Nonprofit Alliance estimates that minimal or no state funding hikes for the past two decades have forced many agencies to cut staff and shrink programs.
The package also includes another $50 million in each year of the biennium to enhance compensation for group home workers serving Connecticut residents with developmental disabilities.
About 1,700 members of the state’s largest health care workers union, New England Health Care Employees Union SEIU 1199NE, have been on strike for two weeks against group homes run by six nonprofit agencies for the state.
And the union says its unsure whether the new funding will be enough to end the strike. Most of SEIU 1199’s members earn $17 to $18 per hour and the union is seeking “a pathway to $25/hour minimum wage.”
Sen. Gary Winfield, D-New Haven, voted for the budget but couldn’t applaud a package that didn’t do more to assist Connecticut’s poor and disabled.
And Winfield said it’s particularly disappointing since striking group home workers have been demonstrating outside of the Capitol almost daily in recent weeks, giving lawmakers daily reminders of unmet needs in Connecticut.
“They’re not asking for candy,” he said. “They’re asking for what is necessary to feed their children.”
Summarizing the overall budget, Winfield added, “I can’t celebrate that. The only thing I have for that is — it is done.”
The new budget does maintain a key proposal from Lamont to erase medical debt among Connecticut’s poorest families — but the plan was scaled back.
The governor’s plan involves working with one of the nonprofit organizations that have been negotiating with hospitals to purchase medical debt at extreme discounts. Those charities then cancel the debt.
Lamont proposed committing $20 million, which he estimated could be leveraged to wipe out as much as $2 billion in medical debt. The budget instead includes $6.5 million, which legislators said still could help eliminate hundreds of millions of dollars in medical debt.
The budget provides some one-time grants to help preserve access for many to health care, but critics say this is a stop-gap measure and not a long-term solution.
The budget specifically provides a total of $17 million to two of the state’s most financially distressed hospitals: Day Kimball in Putnam and Bristol Hospital. It sends another $32 million in one-time grants to federally qualified health centers, which are the primary source of health services for many residents in Connecticut’s urban centers.
Medicaid coverage through the HUSKY program would be expanded for undocumented children, raising the age limit from 12 to 15 with an additional $3 million in funding in the 2024-25 fiscal year.
Income eligibility for HUSKY C — which provides Medicaid coverage to people who are age 65 or older, blind or living with a disability — also would increase.
And another $67.5 million in total across two years would fund an 11% rate increase for licensed child care providers and a 6% increase for unlicensed providers in the state’s Care4Kids system.
But union leaders and other labor advocates are worried the new state budget could force Lamont to reduce state agency staffing — particularly in human service agencies, which already have shrunk considerably over the past 10-15 years.
To stay in balance and below the spending cap, the legislature directs the governor to find $134 million in savings efficiencies throughout the next fiscal year and another $183 million in 2024-25.
Lamont’s predecessor, Gov. Dannel P. Malloy, routinely received aggressive savings targets from legislators during his tenure, which ran from 2011 through 2018, and relied heavily on hiring freezes and job attrition to fulfill those directives.
Recovery for All CT, a coalition of more than 70 labor, faith-based and civic organizations, said the new investments and tax relief in the budget don’t outweigh the potential pain — layoffs, service cuts, understaffing and tuition hikes.
“Connecticut’s people deserve better,” the coalition wrote in a statement. “The movement for justice is growing. We will not just continue to rally and fight against the damage this budget does but to work to build more power for working families, in the streets and at the ballot box. We have seen what solidarity can do even in this budget cycle — and we have only begun to fight.”
This story originally appeared at ctmirror.org.