With public hearings in full swing on Governor Lamont’s proposed FY22-23 budget, Catalyst wanted to provide a quick overview on the budget and its impact on southwest Connecticut.
The $46 billion two-year budget would close deficits of more than $1 billion in each of the next two years without broad based tax increases – a welcome development to many in the short-term.
However, the Governor achieves a balanced budget by heavily relying on one-time federal COVID aid ($1.7 billion) and tapping into Connecticut’s rainy day fund. The proposed 2-year budget also includes cancelling more than $340 million in previously approved tax cuts. While the Governor’s stated goal is to prepare Connecticut for economic recovery and growth coming out of the pandemic, more than anything the proposed budget preserves services with flat-funding and protects existing programs.
The legislative process will now review the budget and craft their own, led by the Democratic controlled Appropriations and Finance Committee leaders. These budgets will be voted on by the respective committees ahead of leaders entering into negotiations with the Lamont administration. This process will play out over the course of the legislative session, which concludes in early June.
Municipal/Education Impact
Using a combination of federal coronavirus pandemic relief dollars and state bonding, municipalities would get an extra $320 million next fiscal year and an additional $220 million FY23 with funds targeted to Connecticut’s neediest communities. However, because the administration relies on federal COVID relief funds to fund municipalities and schools, it leaves funding levels uncertain in two years. His proposal suspends an ongoing initiative to ramp up education grants to local districts, which jeopardizes a return to those later scheduled increases. At a time when education advocates have been urging an acceleration of these increases and provide equitable funding to the benefit of our students of color in particular, this proposal took the education community by surprise and we anticipate legislative adjustments.
Furthermore, Governor Lamont’s budget further delays the municipal revenue sharing account initiative (MRSA) enacted nearly a decade ago. It was intended to share more than $300 million annually in state sales tax receipts with cities and towns, but no dollars have ever reached municipal coffers. However, the Governor did pledge revenue from the proposed taxation of cannabis sales, this would be a small fraction compared to the promise of MRSA.
Legislators are expected to revise the Governor’s proposal to legalize recreational marijuana with an eye towards enhanced inclusivity of communities decimated by the war on drugs. Tax revenue from marijuana sales is estimated at $33.6 million initially and within three years would reach $97 million, 50% of it would be redistributed to distressed towns through the payment in lieu of taxes program beginning 2024.
Affordable Housing Investment
Over the biennium, the Governor proposed $305 million in new bond authorizations for affordable housing development for the state Housing Trust Fund and the Affordable Housing Flex Fund. This investment takes place as advocates and policymakers debate new policies around more equitable housing policy that changes exclusionary zoning laws.
Transportation Investment
To address Connecticut’s rapidly depleting transportation fund, the Governor proposed two initiatives to raise revenue to support transportation infrastructure. After defeat in 2019, the Governor did not propose tolls this year.
Instead, Governor Lamont proposed Connecticut join a multistate climate initiative with Massachusetts and Rhode Island, which would raise an estimated $80 million from new fees on large fuel suppliers of on-road diesel and gasoline fuels. These fees would impact the wholesale level and be distributed back to states to invest in clean transportation initiatives from transit oriented development (TOD) to bike lanes and commuter rail potentially.
The second transportation budget proposal is a new user fee on tractor trailer trucks that would generate $90 million annually. Combined, these two revenue streams would keep the Special Transportation Fund solvent through 2026.
Economic Development
Finally, Governor Lamont rolled out a new economic development incentive as part of his budget. The JobsCT Tax Rebate Program program would give state tax rebates to companies in specific industries that add at least 25 full-time employees for a minimum of two years. This program seeks to incentivize employers in targeted industries to create and maintain a minimum of 25 new full-time equivalent positions with salaries above $37,500 or 85% of the median household income of the municipality where the jobs will be located, whichever is greater. Employers who qualify will receive a fully refundable rebate equal to 25% of the withholding taxes from the new employees over the next five to seven years to reinvest in their business.
As the legislative session continues to progress we will be updating our site about how the governor’s proposals are playing out. Check back here for more updates.