Gov. Ned Lamont proposed a $43 billion, two-year state budget Wednesday, Feb. 20, that would lay the groundwork for tolls, shift more pension debt onto future taxpayers, deal another blow to hospitals, but would also close a multi-billion dollar shortfall without raising the income tax.
But Shelton’s top chief executive does not see significant financial ramifications to the city’s present budget preparation, but admits any decisions from the state will undoubtedly place undue financial pressure on residents.
“This is just the first go-around with the state budget, and everything is subject to change right now,” said Mayor Mark Lauretti, who himself sought the governor’s seat during the past election season. “There are some crazy proposals right now, and some more proposals will surface in different forms. I generally do not get too worked up at this point. We just need to watch how things evolve.”
Lamont’s plan would dramatically broaden the sales tax, and raise an array of “sin” taxes and fees and boost the admissions tax on movies. Although the new governor opted not to propose two items many were expecting — the legalization and taxation of recreational marijuana and new fees on sports betting — he mentioned them in his speech to lawmakers Wednesday afternoon, calling for them to be instituted in the future.
In his proposed budget, Lamont gives businesses one promised tax break — but then takes almost two-thirds of the relief back with a fee increase.
The governor’s budget eliminates the gift tax. But while the estate tax would not vanish entirely, it would remain on a schedule to be phased-down significantly over the next few years.
Cities and towns would receive an extra $65 million in Education Cost Sharing (ECS) grants over the next two years combined, but also would be asked to contribute — for the first time — $73 million toward the state’s pension for municipal teachers. For Shelton, the proposal would increase the city’s ECS aid from $5,992,626 this year to $6,327,231 next year, a $334,605, or 5.6%, hike.
“Though the governor’s budget shows increases in education cost sharing monies,” said state Rep. Jason Perillo (R-113), “those increases are more than offset by his proposed shift of teacher retirement funds to towns. All funds considered, Shelton — and most towns — lose out in Governor Lamont’s budget.”
Lauretti said, for Shelton, the additional money coming into the city will aid in covering any additional costs passed on related to the teacher pension.
“It nets itself out ... there should be no impact,” said Lauretti, adding that his initial examination of the budgetary impact suggests a loss of some $300,000 overall. “But it is still early.”
Lamont’s new budget includes proposals for paid family and medical leave, a four-stage plan to elevate the state minimum wage to $15 per hour by 2023, and investments in minority teacher recruitment. But it also proposes a new asset test in a medical assistance program for seniors and seeks to reduce cost-of-living increases in pensions for future retired state workers.
“This is the ‘Land of Steady Habits,’ but we can’t continue along the same path and expect that things will fix themselves,” the governor wrote in a statement late Tuesday. “Our state needs to make real, substantive structural changes to facilitate a sustainable financial future. As the economy and people’s habits change, we need to demonstrate that Connecticut’s state government can keep pace.”
Lamont’s proposal would spend $21.2 billion next fiscal year and $21.9 billion in 2020-21, according to budget documents. That’s an increase of 1.7% above current levels in the first year and 3.4% in the second. According to projections from nonpartisan analysts, state finances — unless adjusted — would run $3.5 billion in deficit over the next two years combined. The administration came to a similar conclusion, reporting a potential shortfall of $3.7 billion.
“I think Governor Ned Lamont finally realized that our state faces a real financial crisis, but his budget proposal will only send our state backward,” said Perillo. “Tolls, shifting teacher pensions onto municipalities, and taxing things like non-prescription drugs and soda will only hurt hard-working families in Connecticut. I hope my colleagues will not go along with Governor Lamont’s budget proposal and will craft a new proposal that will address our long-term fiscal problems.”
State Rep. Ben McGorty (R-122) said Lamont’s budget sends the wrong message to the taxpayers of Connecticut.
“The governor’s budget will take more money out of our paychecks and wallets to cover unnecessary government waste,” said McGorty. “We need to stop the spending and give residents and businesses a break from the onslaught of tax increases.”
To cover a billion dollar plus deficit, both Shelton lawmakers stated that the governor broke a campaign promise and will implement tolls throughout Connecticut for cars and trucks.
“Also, he will shift teachers’ pensions onto cities and towns, which will force municipalities to increase taxes,” said Perillo. “And to top it off, the governor is pushing to pass a paid family leave — a new income tax right out of your paycheck.”
The lawmakers cited proposals for new taxes on non-prescription drugs, veterinary services, accounting services and real estate as potential financial hits to an already cash-strapped middle class.
Collecting more taxes — but not from the income tax
Lamont — who pledged repeatedly on the campaign trail to close the deficit he inherited without raising the income tax — would do so in his budget, and would also deliver some relief to low- and middle-income families without children.
To save $55 million two years ago, lawmakers restricted the $200 maximum credit to households with dependents until the 2019 tax year — which involves returns filed in the spring of 2020. Lamont’s budget would allow that restriction to expire. But the governor would require consumers and businesses to pay significantly more in terms of sales taxes, an estimated $292 million next fiscal year and $505 million above current levels by 2020-21.
Lamont does it chiefly by canceling numerous exemptions including:
• Professional services: legal, accounting, interior design, and real estate.
• Personal services: dry-cleaning, barber shops, beauty shops, veterinary services, parking, sports and recreation instruction.
• Other services and goods: property repairs and renovations, winter boat storage, non-prescription drugs, vehicle trade-ins, newspapers and certain magazines.
Earlier this week the administration disclosed it would raise several “sin taxes” including a 10-cent surcharge on plastic bags, a levy on electronic cigarettes and related vaping products equal to 75% of the wholesale price, and a 1.5-cent-per-ounce tax on sweetened beverages.
The governor also proposed raising the age to purchase or consume tobacco products and e-cigarettes to 21. Lamont’s budget removes the business entity tax, a $250 charge nearly all businesses pay once every two years. But he would also increase a yearly business filing fee in the secretary of the state’s office from $20 to $100. Businesses would save $250 every two years on taxes, but would pay $160 extra in fees over the same period.
Shifting pension costs to the next generation
One of the largest tools Lamont’s budget uses to close the projected deficits involves scaling back payments into the pension funds for state employees and for teachers.
But while this process reduces costs for a while, it would increase them over the long haul, leaving a bill for a future generation to cover.
For example, Connecticut negotiated permission from unions just two years ago to restructure payments into the state employees’ fund.
Required pension contributions won’t rise as fast as originally planned between now and 2032. But they also will be much larger than anticipated from from 2033 until 2046. And overall, the state pays an extra $17 billion.
Lamont’s new budget wants to restructure that payment schedule for a second time — to get even more relief on the front end — and also to arrange a similar shift for the cash-staved, teachers’ pension fund.
Advocates of this approach argue the pension contributions otherwise would approach an unsustainable level by the mid-2020s, forcing major tax hikes and draining crucial resources from education, transportation and other priorities.
Municipal aid is a mixed bag
Lamont also is seeking a new sacrifice from cities and towns.
Though the governor’s budget preserves a plan to bolster education grants by $21 million next fiscal year and by $42 million in 2020-21, he also wants communities to contribute to the state pension for municipal teachers.
His plan calls for cities and towns to cover a portion of what actuaries call the “normal cost.” This is the amount Connecticut should be setting aside annually so that when present-day teachers retire, the resources to cover their pensions would already be in place.
This does not involve the “unfunded liability,” which is about 85% of the annual contribution to the teachers’ pension. Rather, it involves making up inadequate contributions made by former legislatures and governors for decades prior to 2008.
Under Lamont’s proposal, communities would pay $24 million in teacher pension bills in the first year, and $49 million in the second.
The governor would weight the system, however, so that poor communities pay less than more affluent ones.
The Connecticut Conference of Municipalities wrote in a statement that if Lamont wants communities to contribute to the teachers’ pension, “there also needs to be more holistic, accompanying reforms regarding local revenue diversification, local cost containment through mandates relief, and regionalization of back-office town hall and education services that would help towns and their property taxpayers absorb additional costs from the State. Right now, towns have very limited resources to handle any major cost-shifting from the State.”
“Requiring towns to pick up millions of dollars in teachers’ pension costs without giving towns any opportunity to manage these costs going forward is simply unfair,” Betsy Gara, executive director of the Connecticut Council of Small Towns, said. “Towns have had no say in in negotiating benefits or [pension] contribution levels, which are set in statute. In addition, binding arbitration laws limit the ability of towns to negotiate teachers’ salaries, which contribute to benefit costs.”
The Connecticut Mirror contributed to this article. This article was edited to include comments from legislators representing Shelton.