CT Gov. Lamont unveils 2-year budget: Tax cuts, tax increases and more aid

Hartford Courant – Wednesday, February 5, 2025
By Christopher Keating

Gov. Ned Lamont unveiled his new two-year budget Wednesday with increased funding related to a ‘tweak’ to the state’s fiscal guardrails, and tax and fee cuts for middle-class workers across a multitude of industries.

Lamont proposed an increase in the popular property tax credit to $350, up from $300, per tax filer. The proposal is expected to help 800,000 tax filers, officials said, as the income eligibility will increase, an issue that has restricted the credit in the past.

Lamont is also seeking to eliminate the licensing fees for a wide range of occupations, including nurses, dental hygienists, paramedics, occupational therapists, electricians, plumbers, and public school teachers, among others. The combined savings for the workers would be $25 million in the second year of the two-year budget.

During a 35-minute speech in the historic Hall of the House at the state Capitol, Lamont touched on broad themes that drew some standing ovations from Democrats and far less applause from Republicans.

“Unlike other states, which are cutting back, our budget will increase by over $1 billion in each of the next two years, all the while making a transformative investment in early childhood education and another round of tax cuts,” Lamont told the overflow crowd. “We continue to move away from the days of the ‘permanent fiscal crisis,’ and by year end, we should have paid down about $10 billion in pension debt. Ten billion dollars.”

Republicans and businesses were not happy with Lamont’s proposed change to the “unitary” tax reporting system that they said would lead to tax increases for large, multi-state corporations like Electric Boat, Raytheon, Amazon, Home Depot, Lowe’s, AT&T, Verizon, and the parent company of Sikorsky helicopters, among others. Amazon is now the fifth-largest employer in the state, and the unitary tax would hit about 20 major corporations, officials said. The tax has not been mentioned much at the state Capitol in recent years, but Fairfield-based General Electric Co. cited the tax among the reasons that the company decided to move its headquarters to Boston during the tenure of then-Gov. Dannel P. Malloy.

The Connecticut Business and Industry Association was among those unhappy with the proposed three-year extension of the 10% corporation tax surcharge, which was originally designed to be temporary and is now more than 20 years old. The overall increase in the corporation tax, which includes the unitary tax, is $168 million in the second year of the two-year budget, according to Lamont’s plan.

For individuals, bus fares would increase by 25 cents per ride to $2, marking the first fare increase in 10 years. Railroad fares would increase by 5%, including the Metro-North Commuter Railroad.

Senate President Pro Tempore Martin Looney, a liberal Democrat from New Haven, hailed Lamont’s plan as “a good opening statement” that will lead to negotiations in the coming months before the final budget deal is settled in early June.

The five key themes for funding increases that both Lamont and Democrats support, he said, are early childhood, special education, Medicaid, affordable housing, and prescription drugs.

“It really broadly addresses the needs of the state,” Looney said. “What we’re talking about is a matter of degree here.”

Guardrails

After a debate that has lasted for a year, Lamont is proposing a change in the fiscal guardrails that includes the “volatility cap” that would allow more spending by the Democratic-controlled legislature. The proposed change would allow $593 million in additional spending over the next two years that would not have been possible without the changes. The move requires a 60% vote in both houses of the legislature, rather than a simple majority.

Lamont’s budget director, Jeffrey Beckham, described the change as a “one-time upward adjustment” in the cap.

Since the budget was prepared by Lamont’s budget team starting in October, the final product does not list specific contingencies regarding potential budget cuts by the administration of Republican President Donald J. Trump. Lawmakers, however, say that the state could dip into its rainy day fund for fiscal emergencies if the federal cuts in the coming months are deep.

“The last few weeks have been turbulent, and we can only guesstimate how changes in Washington will impact our budget over the next few months and the next few years,” Lamont said at the beginning of his speech. “Our proposed budget is our best effort to stay true to our Connecticut values while continuing to focus on affordability and opportunity for all.”

Under the proposal, the current $26 billion state budget would increase to nearly $27 billion in the next fiscal year that starts on July 1 and then $28.2 billion in the 2027 fiscal year. The two-year plan covers $55.2 billion in spending.

“It was a very disappointing budget,” said House Republican leader Vincent Candelora of North Branford. “The governor has clearly waived the white flag. He is abandoning all of his fiscal principles. He is eroding the guardrails. He’s willing to increase spending. He’s willing to increase taxes. That was my takeaway.”

Senate Republican leader Stephen Harding of Brookfield agreed that the speech, cheered by Democrats, fell short.

“No energy relief, no tax relief, in fact $380 million in tax increases,” Harding said. “What does that say to the people of the state of Connecticut? That basically we’re going to fund our bureaucracy, we’re going to blow by our guardrails, and go pound sand if you need help.”

While individual taxpayers would see a combined $85 million in relief per year with the increased property tax credit and $22 million in relief from eliminating licensing fees, the tax increases would be imposed on hospitals and businesses.

“There might not be tax increases for personal individuals, but they’re going to trickle down to them,” Harding said. “One of the things that he broadly got reelected on was being a fiscal moderate, and this budget was far from that.”

Hospitals

Even before Lamont’s speech began, the Connecticut Hospital Association was blasting his plan.

“Governor Lamont’s budget proposal contains policies that are devastating to hospitals, their workforce, and their patients,” said Jennifer Jackson, the hospital association’s chief executive officer. “These proposals will add significant financial burdens on local hospitals at a time when they are already struggling, making it more difficult for hospitals to meet their mission of caring for communities, improving quality, growing and supporting the healthcare workforce, and investing in innovation to advance care.”

Jackson added, “The governor’s budget increases the taxes paid by hospitals, reduces their reimbursements for providing care, and hurts patients, while doing nothing to address the $1.4 billion annual Medicaid shortfall, increase access, or define a long-term vision for healthcare. We ask Governor Lamont to reconsider these proposals and work with us to build a budget that protects patients, supports care delivery and the healthcare workforce, and plans for Connecticut’s future.”

Asked about the criticism from the hospitals, Beckham said, “I look forward to seeing them at the table. … What they’ll say is they have an inadequate reimbursement now.”

In the coming weeks and months, numerous groups will descend upon the Capitol to lobby legislators to award more funding at a time when the state is dealing with a spending cap.

Gian Carl Casa, president of the state’s nonprofit alliance, said, “We appreciate that the governor’s proposed budget calls for an increase in funding for community-based nonprofits over the biennium. But without federal ARPA funding fully annualized, the Governor’s proposal is an effective $19 million cut for nonprofits in the first year.”

Republicans

Lamont unveiled his budget on the day after Senate Republicans called for tax cuts of $1,000 for middle-class families that would be paid partly by a two-year wage freeze on unionized state employees.

While the amounts would differ by income, Republicans said the average family would receive a cut of about $1,000 from the state income tax and a slight decrease in the current payroll tax of 0.5% that funds the state’s paid family and medical leave program that is running a surplus.

Although Democrats said the Republican tax cuts are designed to help millionaires and billionaires, the structure of the Republican proposal would block income tax cuts for millionaires because they do not pay the 4.5% and 3% rates that would be reduced. Instead, millionaires pay the top rate of 6.99% on all of their income and do not pay the lower blended rates that middle-class workers pay.

The latest numbers from Lamont’s budget office show that the top 2.5% of tax filers paid 41% of the state income tax in 2022. At the other end, the bottom 49% of filers — representing essentially half of filers statewide — paid only 2.9% of the income tax.

The latest estimates from state Comptroller Sean Scanlon show there is a projected surplus in the state’s general fund of $443 million and a surplus of $159 million in the once-troubled Special Transportation Fund.

Besides the income tax cuts, Republicans want to reduce licensing and filing fees for workers and small businesses — similar to Lamont’s plan. They also want to cap local property tax increases at 2% per year.

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