Despite increasing General Fund revenue by $2.52 billion over the next two years, Connecticut will still face billion-dollar budget deficits from 2022 through 2024, according to a budget report released by the Office of Fiscal Analysis. “The General Fund is projected to be in deficit by over $1 billion per ...
Breakdown of the new bipartisan compromise budget
The newest budget negotiated between Democratic and Republican leaders in both the House and Senate has yet to be released, but based on the information we have received, this is a breakdown of the changes included in the new budget package.
The Senate is expected to convene for a vote at 7 p.m. tonight. Leadership expects the budget to pass both chambers, but the threat of a veto by Gov. Dannel Malloy still hangs over the proceedings. A veto override would require a two-thirds vote in both the House and Senate.
Taxes: There will be a new tax on ride-sharing services like Uber, and an increase in the cigarette tax. The cell phone tax and second home taxes proposed in earlier budgets have been eliminated. There is no increase in either the sales or income tax. The vehicle property tax will remain in place and the cap will be raised to 45 mills in 2019. The Earned Income Tax Credit will be scaled back 4 percent and there will remain a $200 limit on the property tax credit. The estate tax will be raised over several years to meet federal standards and help prevent families from moving out of state to avoid Connecticut’s estate tax. The budget also eliminates taxes on pension and social security payments for those making less the $75,000 per year or $100,000 if filing jointly.
Spending Cap: This budget will create a strong spending cap, something Connecticut voters overwhelmingly approved 25 years ago. Pension costs for both state employees and teachers, which have generally been moved out from under the cap through gimmicks in the past, will be phased in over the course of several years. The cap will also include aid to distressed municipalities, which has also been kept out from the cap for decades and has been a point of contention between lawmakers. This will ensure the state cannot overspend and force lawmakers to account for the rising pension costs in their spending plans. Debt service will remain outside of the cap, a provision which was part of the original spending cap plan.
Bonding cap: This budget will place a $1.9 billion cap on state bonding. Connecticut bonding has skyrocketed over the past several years and debt service payments are one of the growing fixed costs that are crowding out other state services and leading to budget deficits. Recent credit downgrades for the state means that future borrowing will be more costly. The bonding cap will help ensure that Connecticut doesn’t try to do too much with its very limited funds and higher borrowing costs.
Labor reforms: The budget includes a requirement that the legislature vote on every union contract. The budget also limits future SEBAC agreements to 4 years. Connecticut is currently trapped in a 30 year contract with SEBAC after previous concessions agreements extended the 20 year contract signed by Gov. John Rowland in 1997. The prevailing wage threshold will increase from $400,000 to $1 million, which will help municipalities save money on capital projects. The new budget also includes reforms to binding arbitration for municipalities and says that an arbitrator must take into account the municipality’s ability to pay and can take into account consideration beyond the last offer. Municipalities will also be able to re-open labor contracts in order to facilitate shared services with other towns. Connecticut teachers and judges will have to contribute 1 percent more of their pay toward their pensions.
Municipal Aid / Education Cost Sharing: Municipalities will not have to pay for teacher pensions. Some towns will still see cuts in their education cost sharing funds, but far from the massive cuts made by Gov. Dannel Malloy under his executive order. Details on how much ECS funding each town will receive are forthcoming, but towns may be able to make up for any cuts through the labor reforms to prevailing wage, binding arbitration and shared services.
State employee workforce: There will be a hard hiring freeze at the state level. The concessions agreement stipulated layoff protections for state employees over the next four years; a hiring freeze will allow the state to reduce the size of its government workforce as employees leave or retire.
Hartford: Hartford will receive a $40 million bailout from the state but it will come with strings attached. The budget creates a Municipal Accountability Review Board, which will fund the city an additional $20 million and the state will make a $20 million payment to bond-holders to prevent the city from defaulting on its loans. The Review Board will exercise some oversight of the city’s finances. Although this provides Hartford with the $40 million sought by Mayor Luke Bronin, Moody’s projects the city will need $60 million every year for the next 20 years.
The XL Center: The XL Center will get $40 million in bonding for upgrades but will be put on the market for sale in two years.
Highway tolls: The new budget eliminates the Transportation Finance Authority, which would have been run by an unelected board of officials and had the ability to build and operate tolls on Connecticut’s highways. The Authority also would have had the ability to oversee all transportation projects throughout the state.
In a statement issued earlier today, Yankee Institute President Carol Platt Liebau said the Yankee Institute supports the new budget deal.
“All of us at Yankee Institute stand with so many others in Connecticut who are tired of being asked for more money without a definite commitment that the status quo in Hartford has changed. That’s why we have spent this year insisting that lawmakers put real, meaningful structural reforms in our state budget.” Liebau said. “Certainly, the deal is far from perfect. But it is an important start to restoring Connecticut’s prosperity.”
This article may be updated to include changes as the budget language is released.
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