Half of the legislature’s state budget proposal came into focus Wednesday as the Democratic-controled tax-writing committee approved a revenue plan that relies on skirting a statutory revenue cap in order to fund tax relief proposals.
Leaders of the Finance, Revenue and Bonding Committee kept the details of its tax plan under wraps until shortly before the panel convened to approve the package, which serves as the revenue component of the legislature’s response to the budget plan Gov. Ned Lamont proposed in February. The Appropriations Committee will adopt a spending plan later this week.
In broad strokes, the plan preserves a Lamont proposal to expand the property tax credit, increasing it from $200 to $300. It reflects an expansion of the Earned Income Tax Credit program for the working poor and creates a Children’s Trust Fund, which will eventually be used to fund a new income tax credit for families with children beginning in 2024.
“We believe that this proposal before us today threads that all-important needle of meeting the moment when it comes to helping those who are having a really hard time in the state right now afford basic things like child care and food and trips to the gas station,” said Rep. Sean Scanlon, a Guilford Democrat who co-chairs the committee.
But the panel eventually advanced the document on a largely partisan vote. Although Republicans and moderate Democrats on the committee praised many of the tax cut proposals contained in the plan, they objected to a budgeting maneuver employed to pay for them.
The bill sidesteps a revenue cap adopted in the 2017 bipartisan budget, which prohibits spending from exceeding expected revenues. The cap has contributed to recent budgetary surpluses which have resulted in payments against the state’s unfunded pension liabilities. Several Republicans objected to the bill’s partial shift away from that policy.
“To be honest, there are many things I find in [the bill] that I could support,” Rep. Holly Cheeseman, R-East Lyme, said. “Unfortunately, for me, the poison pill is the use of the revenue cap.”
Rep. Tammy Nuccio, R-Tolland, agreed and compared the legislature to a family just beginning to see the fruit of sound budgeting decisions.
“When you start paying that debt down and you start getting extra money here and there, it’s really enticing to lower what you’re paying on that debt and go on vacation,” Nuccio said. “But that’s a problem because the state of Connecticut’s unfunded liability and pension debt is an albatross around the necks of our children and possibly their children.”
Scanlon sought to reframe Nuccio’s analogy, saying child care payments were more akin to an unexpected but necessary expense than to a vacation.
“I would not say, to keep this analogy going, that we are dipping into our savings to go on vacation. I would say that we’re dipping into our savings to break the hot water heater that broke,” Scanlon said. “That’s because the program that this is intending to do is not a nice-to-have, it’s a must-have for hundreds of thousands of people in this state.”
Despite a $1.76 billion surplus, state policymakers are somewhat constrained in the tax cuts they can adopt this year. Those restrictions stem both from projected deficits in future years and federal rules, which limit how much states can use temporary relief funds to offset tax cuts.
The Lamont administration has estimated the federal rules leave the state able to adopt about $179 million in tax cuts this year and the governor has been skeptical of making room for a child tax credit.
“You can’t do everything,” Lamont said Tuesday. “The legislature in their wisdom has a spending cap and there also is a cap in terms of how much tax cuts you can do, that’s under federal law.”
Separately, the Democratically-controlled committee passed an alternative to Lamont’s car tax proposal.
“This is a strike all and it essentially presents a different option for car tax relief than what the governor has proposed in his budget,” Sen. John Fonfara, D-Hartford, said “This would provide for passenger vehicles in municipalities with mill rates of 29 or greater and those vehicles would receive a $5,000 credit or exemption on their assessment for any passenger vehicle in a municipality that qualifies.”
It would cost the state $240 million in lost revenue. The governor’s property tax proposal, meanwhile, would cost $164 million.
Whereas Lamont’s proposal would reimburse towns for lost revenue from the state budget, the bill adopted by the Finance Committee would offer a $5,000 exemption for towns with mill rates over 29 mills. That means a car valued at $10,000 would only be taxed on $5,000 of its value, reducing car taxes for vehicle owners who live in towns with mill rates higher than 29 mills.
It’s still unclear whether the Appropriations Committee proposal will match the revenue package.