It was a tale of sharp contrasts Tuesday as the Senate gave final approval to a new $43.4 billion, two-year state budget. Majority Democrats hailed it as a historic plan that averts a big deficit without raising income tax rates, makes key investments in education and health care, and promotes long-term fiscal stability. But Republicans painted it as a sloppy blueprint that overtaxes businesses and consumers, spends and borrows recklessly, leaves Connecticut with no viable long-term transportation building program, and skirts the legal requirement of a balanced budget.
Following a nearly eight-hour debate, the Senate voted 20-16, largely along party lines, to send the budget to Gov. Ned Lamont, who is expected to sign it.
In the House, where Democrats also hold an edge, the measure passed 86-65 late Monday night.
“It’s the most fiscally responsible budget in Connecticut history,” said Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee.
“This really is a strong and forward-thinking budget for the state of Connecticut,” said Senate President Pro Tem Martin M. Looney, D-New Haven. “I think it shows confidence in the future of this state.”
Republicans saw things very differently.
“It’s death by a thousand cuts,” countered Sen. Kevin Witkos of Canton, the second-highest-ranking Republican in the chamber. “We’re bleeding the people of Connecticut dry.”
“I think we’re making it incredibly difficult to survive in this state, and I think that’s a shame,” said Sen. John A. Kissel, R-Enfield.
State finances were projected to run $3.7 billion in the red over the next two fiscal years combined unless adjustments were made, and Democrats noted this shortfall was averted in the budget without raising income tax rates — a top goal of Lamont’s.
With spending growth in the General Fund — which covers the bulk of annual operating expenses — limited to 1.7 percent in the first year and 3.4 percent in the second, the package positions Connecticut for a record-setting reserve to safeguard against the next recession, said Sen. John Fonfara, D-Hartford, co-chairman of the Finance, Revenue and Bonding Committee.
Connecticut is projected to have $2 billion in the bank by Sept. 30, and could add as much as $900 million to that rainy day fund over the coming biennium — provided spending and revenue projections hold up, Fonfara said.
The budget also restructures contributions into two state pension funds, cutting expenses over the next two fiscal years but shifting billions of dollars in contributions, plus interest, onto taxpayers after 2032.
The deal also resolves a four-year old lawsuit hospitals have pending against Connecticut over a controversial provider tax. Though full details of the settlement haven’t been released and still must be ratified by hospitals, Lamont administration officials have estimated it could cost the state about $160 million later this summer. Those funds would be drawn from the projected surplus for this fiscal year.
Osten said Connecticut is poised to enjoy greater fiscal stability than it has experienced in years, a key to bolstering the economy. “It’s what our residents have asked us to do,” she said. “It’s important for us to make sure Connecticut is moving forward.”
Equally important, she said, are the investments the budget makes. It advances an ongoing program to increase Education Cost Sharing grants to cities and towns, giving them an extra $116 million over the next two years.
At the same time, Lamont’s proposal to ask communities to contribute $73 million toward teacher pension costs over the biennium was scrapped.
The budget expands the HUSKY A Medicaid program for working poor adults to serve roughly 4,000 more people each year.
It includes rate increases for nursing homes which are key to averting strikes this summer at 25 facilities. And it establishes a program in the second year to allow full-time students to attend community college debt-free. But that is conditional upon the state achieving success with new online lottery sales and in recruiting new community college students who qualify for large amounts of federal financial aid.
“The cost of higher education is keeping people away from being able to attain their dreams,” said Senate Majority Leader Bob Duff, D-Norwalk.
Surging pension costs have been one of the major factors behind the deficit forecasts that have plagued state budgets since the last recession.
“We’re still climbing the hill of those fixed costs today,” Fonfara said, adding that planned refinancing of payments into the teachers’ and state employees pensions would bring stability and predictability to state finances.
But Republicans countered that not all of the spending was an essential investment. The budget contains more than $9 million for dozens of community-based projects — primarily in the home districts of majority Democratic legislators.
More than $6 million of the spending over the next two years would be funded out of an “other expenses” account in the Judicial Branch budget. Recipients range from youth sports leagues to YMCA and 4-H organizations, and from community and cultural centers to churches.
A farmers’ market in Ellington, the Women’s Business Development Council in Stamford, the Thames River Heritage Park water taxi in Groton, a nonprofit marine research group on Long Island Sound, and a Hartford Little League program named after Rep. Minnie Gonzalez, D-Hartford, all secured funding.
Democratic legislators argued their GOP counterparts had no grounds to criticize the majority’s budget, having failed to offer any alternative.
But Senate Minority Leader Len Fasano, R-North Haven, said Lamont and his fellow Democrats in the legislature’s majority excluded the GOP from budget talks. Alluding to the governor’s often-used expression of having an “open-door” policy, Fasano said that when it came to the budget, “Doors were open but nobody was home.”
A broad mix of tax increases Republicans took aim at tax hikes in the budget even more than they criticized spending.
And while Democrats noted their plan doesn’t raise the income tax rate, GOP lawmakers responded the budget finds other ways to claim more revenue through the income tax as well as through other levies.
The budget generates about $340 million in the first year and $365 million in the second year by increasing tax and fees and by canceling previously approved tax cuts that haven’t yet taken effect. And this doesn’t include $1 billion in tax relief that was supposed to be delivered to hospitals. Most of that relief is expected to be canceled, though, as part of the settlement.
Consumers face several increases.
Several sales tax exemptions on services are eliminated. The sales tax rate on digital downloads rises from 1 to 6.35 percent, while a 1 percentage point surcharge is placed on restaurant food and other prepared meals. Grocery store and other retail shoppers will pay a new 10-cents-per-bag tax on plastic bags and there is a new tax on certain vaping products. The alcoholic beverages tax will rise 10 percent.
“This has to be, in my entire 10-year legislative career, the most regressively taxed budget I have ever had the displeasure to vote on,” said Sen.Tony Hwang, R-Fairfield.
Businesses also take several hits.
Owners of limited liability corporations and other small and mid-sized businesses that don’t pay the state corporation tax will pay an extra $50 million per year due to the reduction of an income tax credit.
The business entity tax, a $250 fee paid once every two years, is repealed, saving companies $44 million But the new budget raises three times that amount from businesses through other fee and tax changes.
Seniors will receive a promised tax cut through expanded income tax exemptions for social security and pension earnings. But other income tax relief scheduled to kick in for retired teachers, college graduates with student loan debt, and middle-income households without children, all was suspended.
“News flash: If you graduate from college you’re going to owe us more money than any other state you might move to,” said Sen. Rob Sampson, R- Cheshire.
And a new “mansion tax” surcharge was added to the real estate conveyance levy. It effectively targets only those who sell houses for more than $2.5 million — and who then move out of Connecticut.
Republicans also criticized Democratic legislators and the governor for siphoning dollars earmarked for transportation and keeping them in the budget’s General Fund.
The new budget cancels more than $170 million in sales tax receipts originally set to be dedicated to transportation over the coming biennium. Hwang charged the transportation fund diversion explains “why people don’t trust government. We never cease to disappoint them in that area.”
Fasano asserted the plan skirts the state Constitution’s requirement of a balanced budget. To remain in balance, the plan assumes the Lamont administration will save almost $460 million across two years, though in two areas that hinge on negotiations with state employee unions.
Lamont and union leaders both have said they believe Connecticut can reduce health care costs — without reducing benefits — through various efficiencies. The governor also is seeking union permission to refinance contributions into the pension fund for state retirees. This would be the second refinancing of this fund in three years.
But Lamont and the State Employees Bargaining Agent Coalition (SEBAC) haven’t even announced a tentative deal yet. What happens, Fasano asked, if these savings don’t materialize?
The GOP leader said he believes the bill must demonstrate some alternative means for the governor to achieve the savings in order to meet the balanced-budget requirement set in the Constitution.
“At best, the governor is hoping to achieve a savings based upon a potential, possible, maybe conversation with the state employee unions,” Fasano said. “Passing a budget on a wing and a prayer is no way to run a state.”
But Lamont’s communications director, Maribel La Luz, said there’s no legal basis for Fasano’s claim. “This budget is consistent with others in the past that have been signed in anticipation of reaching an agreement with SEBAC, and Senator Fasano knows that full well,” La Luz said, adding the union leadership “has expressed a willingness” to achieve the pension savings.
La Luz also said the health care savings “are routinely included in budgets and there is support in the legislature for the identified savings as reflected in the budget plan.”