Lamont Releases Budget with $1.4 Billion in New Taxes and Tolls

The steady drip of information and budget ideas from the governor’s office over the past two weeks finally culminated with Gov. Ned Lamont’s first budget proposal, which will be sure to please practically no one.

The governor’s plan calls for an expansion of the state sales tax, shifting a portion of the teacher pension cost onto municipalities, new taxes on soda, plastic bags and vaping products, changes to the state employee retirement system, paid family medical leave, and, of course, tolls.

New taxes would total $651.5 million by 2021. Tolls under the governor’s proposal would add an additional $800 million going to the state when the tolls are finally approved and built, although some of that revenue will come from out-of-state drivers.

Total revenue increases will be $1.28 billion in the first year and $1.76 billion in the second year, including revenue from taxes previously meant to expire in the next few years.

The governor also calculates a reduction in spending of $522.6 million through less borrowing, changes to state employee health administration, possible pension reforms, and further out-sourcing of some state services.

Connecticut faces a $3.7 billion budget deficit over the next biennium, driven largely by the rise in state fixed costs like debt service, pension payments, retiree healthcare and state employee raises negotiated as part of Gov. Dannel Malloy’s 2017 SEBAC agreement.

Lamont fed the media bits and pieces of his budget plan leading up to Wednesday’s address, which already bred reaction from various groups, including state employee unions who said they will not entertain anymore concessions to the state, and No Tolls CT which decried the governor’s reversal on his campaign promise to only toll large trucks.

So here’s a breakdown of the major points in the governor’s budget:

• Paid Family Medical Leave – A major initiative for Democrats, a bill creating a paid FMLA program has already passed out of the Labor and Public Employees Committee and will institute a .5 percent payroll tax on employees. The governor says this will cost $5 million in up-front costs, far below previous projections by the Office of Fiscal Analysis.
• Tolls – Lamont presented two tolling options – one for tolling only large trucks and one for tolling every vehicle. It appears the plan to toll only large trucks is likely a lost cause and the governor does not appear to be seriously entertaining the idea, contrary to his statements on the campaign trail. His budget calls for 53 tolls on I-84, I-95, I-91 and Route 15 to raise $800 million per year.
• Expansion of the State Sales Tax – Lamont has not called for raising the sales tax but rather expanding it to include more services. Specifically, legal, real estate and accounting services, beauty and barbershop services, parking and sports instruction. The governor would also repeal sales tax exemptions for residential property renovation and repair, non-prescription drugs, vehicle trade-ins and newspapers and magazines. This is projected to raise $292 million in the first year and $505 million in the second year.
• Increase the Minimum Wage to $15 per Hour – Another priority which Democrats have long sought. Lamont would increase the minimum wage over four years to $15 per hour, however this will actually increase state costs by $9 million by 2022. Business organizations have claimed the change will hurt jobs and business growth.
• Soda Tax and Plastic Bag Surcharge – this would levy a 1.5 cent per ounce tax on soda and other sugary beverages by 2021 and a 10 cent surcharge on plastic grocery bags in 2020. It is expected to raise $193 million combined.
• Debt Diet – the governor would reduce state bonding. Debt service on Connecticut’s debt is expected to grow to $2.4 billion per year.
• Teacher Pension Costs – Lamont proposes transferring one-quarter of the normal cost of teacher pensions onto towns and cities, reducing the teacher pension discount rate to 6.9 percent, and offers a plan to re-amortize the $2 billion teacher pension obligation bond – something which has eluded past governors and may still be questionable.
• Changes to State Employee Retirements – Creates a risk-sharing cost of living adjustment for state employees, although this will require negotiation with state employee unions. The governor also proposes changes to administering health benefits for state employees, which the state can do unilaterally. In total, Lamont estimates the changes to save $458.7 by 2021.
• Hospital Taxes – Lamont will continue Gov. Malloy’s Medicaid tax scheme for hospitals in which the state tries to recoup federal Medicaid dollars through leveraging a tax on hospitals.
• Efficiency Savings – Lamont also proposed moving more social services to private non-profit providers and using technology to achieve $37.1 million in savings.
• Rainy Day Fund – Lamont would largely leave the state’s Rainy Day Fund untouched but would divert $380 million in state surpluses away from the reserve to the teacher pension system.

During his budget address, Lamont said he refuses to continue to “pour water into a leaky bucket,” by raising income or sales tax rates.

Lamont also said he refuses to have a “Wisconsin moment” in doing away with collective bargaining and wants to show that collective bargaining can work through negotiations with SEBAC.

Lamont told the General Assembly that tolls are necessary in order to fix the state’s infrastructure problems and that it was the surest way to raise the necessary revenue.

“The numbers must add up at the end of the day,” Lamont said.