Gov. Ned Lamont unveiled his $26 billion annual budget Wednesday — pushing to keep the much-debated fiscal “guardrails” that have restored the state to financial stability after years of fiscal problems.
In his sixth year as governor, Lamont delivered the State of the State Address that was briefly interrupted by protesters in the historic Hall of the House in Hartford.
Lamont’s speech marked the kickoff of the short legislative session, which lasts only until May 8, as lawmakers will be scrambling to get their bills approved before time expires under dates established by the state Constitution.
The most overriding issue facing Lamont and lawmakers is making adjustments to the $26 billion annual state budget for the fiscal year that starts in July. Liberal lawmakers say the state’s fiscal guardrails that include spending and bonding caps have prevented the state from fully funding various social programs, but Lamont and Republicans say the legislature must keep its promise that was lengthened last year when both chambers voted unanimously to extend the guardrails for another five years.
After years of major budget problems and tax increases, lawmakers have been surprised by the extent of the robust fiscal turnaround that included paying down about $8 billion in the long-neglected pension funds for state employees and public school teachers.
PHOTOS: CT State of the State Address
“Our budget provides the biggest commitment to child care in our history — an additional $90 million next year alone,” Lamont told the standing-room-only crowd in the historic Hall of the House. “Providing additional pay for early childhood educators and higher reimbursement for our centers and family care homes — all following the recommendations of the blue-ribbon panel.”
In a related matter, Lamont said the budget “continues to provide incentives for more companies to follow Electric Boat’s lead” by increasing child care that allows the submarine-maker to recruit more workers and “retain new moms and dads and also a better start for their newborn.”
Opening day at the Capitol resembles opening day at Fenway Park or Yankee Stadium — a day of optimism, big smiles, back-slapping and high hopes. But veteran legislators also know that there will be difficult days ahead when Republicans and Democrats disagree and the House clashes with the Senate.
House majority leader Jason Rojas, an East Hartford Democrat, told his House colleagues that they can make progress during the legislative session if they work together.
“After today, we have 91 days to prove it,” Rojas said on the House floor. “Let’s get to work.”
Balanced budget
Starting next week, the budget-writing appropriations committee will hold public hearings on all aspects of the budget, covering more than 50 different departments, commissions, and offices. That includes the departments of education, transportation, motor vehicles, social services, consumer protection, insurance and correction. Lawmakers will closely scrutinize those departments before offering budget recommendations that are subject to final approval by the House, Senate, and Lamont.
The proposed budget does not include any broad-based tax cuts, but Lamont and others say they are focusing on paying for the tax cuts that have already been approved in an attempt to make Connecticut more affordable.
“Speaking of affordability, our tax credit for working families and $400 million tax cut for middle-class families should be adding about $25 per paycheck,” Lamont said. “Our income tax is less than our neighboring states, and less than most sunbelt states for the majority of our workers. We have eliminated the tax on pensions and 401 (k)s for most retirees, and we have eliminated the estate tax for 99% of our citizens.”
Based on tax increases through the years on the wealthiest residents, the tax burden has shifted to the point that the top 2% of Connecticut residents pay 40% of all state income taxes, according to state statistics. The bottom 54% pay only 4% of the income-tax bill.
Of 1.7 million tax filers in Connecticut, 1.1 million or 63% will receive relief this year.
Guardrails
The fiscal guardrails is the biggest issue facing the legislature, affecting how much money can be spent on a $26 billion budget that funds everything from salaries of judges to dental care for prison inmates and overtime for snowplow drivers.
Senate President Pro Tempore Martin Looney, a liberal Democrat from New Haven, said adjusting the guardrails would be “wise.”
“We can’t be frozen in the world of 2017,” Looney said after Lamont’s speech. “We need to reflect changes that have happened since then. We need a volatility cap. We need an overall spending cap, but it needs to be adjusted for other times.”
When the volatility cap was adopted, Looney said, “no one anticipated” that the state budget would generate the surpluses Connecticut has seen over the last several years.
“We’re now in a much healthier position there,” Looney said. “We have a huge rainy day fund. So now it’s time to be robust in addressing some of the social needs of the state.”
When asked if he supports higher taxes on the rich, Looney responded, “Always.”
By contrast, Senate Republican leader Kevin Kelly of Stratford said Democrats need to focus on priorities as the legislature operates within the guardrails.
“There are members in the majority that are now looking at falling again in love with taxing and spending,” Kelly said. “We have a budget that works. And what’s happening here is these budgets are about priorities. They should really be looking at … their own caucus and saying, ‘Did we create the right priorities?’”
House Republican leader Vincent Candelora of North Branford said Republicans hope to “memorialize” the state’s spending structure within the Connecticut Constitution.
“I think there are many Democrats that want to undo it,” Candelora said. “And I think what we heard from the governor today is he wants to see these maintained. It’s something that both our caucuses — the Senate and the House Republicans — are going to continue to try to fight for.”
House Speaker Matt Ritter of Hartford said the issue has split into “two schools of thought” that personify the extremes.
“There are people who say that if you touch the guardrails by $1, the state will be bankrupt,” Ritter said. “Again, that’s not accurate. And there are people who say the guardrails don’t work. That’s not accurate. … The guardrails have worked very well. Having a $4 billion rainy day fund is one of the most liberal things you can do. Why? Because it avoids you having to cut spending when you have bad times, which are inevitable in government and in just the economy in general. As always, there’s a middle ground.”
Remote tax
While no immediate relief is in sight, Lamont is seeking to gain as much as $200 million per year in the future as part of the remote workers tax. Currently, about 75,000 Connecticut residents have jobs in Manhattan or other spots in New York, where they pay New York State taxes. The problem, however, is that many of them no longer work fulltime in Manhattan and have worked remotely at least part of the time since the coronavirus pandemic. But they still continue to pay New York State taxes, which officials say is unfair.
The issue would eventually be decided in federal court and possibly by the U.S. Supreme Court in a multi-year process.
“They would be paying taxes here,” said Jeffrey Beckham, Lamont’s budget director. “They wouldn’t owe taxes to New York for that work performed here. … I don’t think we’ve had a [court] ruling on this particular flavor of it. New Jersey is doing this as well. We’re going to try it and see what happens. It would be found money. It would be new money for us. We think it’s an unconstitutional overreach by the state of New York, and our residents should be paying tax to us, and they would be paying at a lower rate.”Spending cap
Beckham said lawmakers must be cautious about spending at a pace that is faster than taxpayers can handle. The spending cap establishes the highest possible increase in annual state spending — a number that is determined by the higher of the inflation rate or growth in personal income. For the 2025 fiscal year, spending will increase by about 4%.
“This is an important point,” Beckham emphasized recently to reporters. “The latest information we have is that it’s a 3.96% increase, which is slightly ahead of inflation now, which is a good place to be. You want your personal income growing faster than inflation. The spending cap will therefore be based on growth in personal income, which is a good thing. … If you’re advocating going beyond the spending cap, you’re literally advocating that we spend money faster than our taxpayers can make it. Their growth in personal income went up 3.96%. That’s what our spending cap number for 2025 will be. If you go above that, you’re saying let’s spend money even faster than our taxpayers are making it.”
Courant staff writer Alison Cross contributed to this report.
Christopher Keating can be reached at ckeating@courant.com
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