Budget Deal: Paid FMLA, Lottery for Teacher Pensions, SALT Skim, Transportation Short-Changed for Two Years

According to the budget deal released Sunday evening, Gov. Ned Lamont and Democrats were able to reach a deal on a paid family and medical leave program, which is included in the $43.35 billion two-year state budget.

Lamont had threatened to veto the paid FMLA legislation, saying that it added another level bureaucracy to the state. The FMLA program outlined in the budget creates a commission which would have control over the program.

Under the paid FMLA program, the .5 percent payroll tax would remain fixed, while the benefit would fluctuate to ensure the program remains solvent, a marked difference from earlier versions of the bill. 

The budget agreement also transfers revenue from the Connecticut Lottery Corp. to the Teachers’ Retirement System to pay for pension bonds and allow for the reamortization of the teacher pension debt.

It also includes the “SALT Skim,” reducing the amount of tax money credited back to businesses under Connecticut’s recently-enacted work-around to federal tax changes that limited the amount of federal deduction for state and local taxes.

Lastly, the budget reduces the amount of vehicle sales tax revenue transferred to the Special Transportation Fund for the next two years and then restores full funding by 2022.

Although the budget still diverts the revenue away from the STF it is a marked difference from the budgets submitted by both Lamont and the Finance, Revenue and Bonding Committee, which never planned to remit the full amount of the vehicle sales tax.

The budget reduces the vehicle sales tax transfer from 33 percent in 2020 to 17 percent and then from 56 percent in 2021 to 25 percent. However, the following fiscal year the transfer returns to its previously scheduled amount of 75 percent and then 100 percent by FY 2023.

The governor and Democrat leaders say the state needs tolls on highways to fund the STF and leaders may call a special session to try to pass a tolling bill.

The imposition of a paid family and medical leave program, along with the reduction in credit for pass-through businesses will be sure to anger business owners and organizations which opposed paid FMLA and saw the reduction of the pass-through credit as violation of trust.

Some businesses already face increasing labor costs following the passage of a $15 minimum wage, which prompted one manufacturer in Waterbury to say they will leave the state.

Although, Lamont originally proposed forcing municipalities to pay for part of the normal cost of teacher pensions, the budget calls for transferring lottery revenue to a new account specifically for paying off the teacher pension bonds and possibly allowing Connecticut to stretch out pension payments without violating the 2008 bond covenant.

The new Connecticut Teachers Retirement Fund Bonds Special Capital Reserve Fund will receive a transfer of $380.9 million from the General Fund, which is roughly the amount of money taken in by the CT Lottery Corp.

The prospect of using lottery revenue for teacher pensions was the subject of a special commission that met and planned over the course of 2018.

Lottery revenue is used to fund several different education programs and Medicaid. It is unknown how the budget will fill the gap for those programs left by the transfer of funds into the new teacher pension account.

Municipalities balked at the prospect of paying for teacher pensions, which the state has underfunded over decades. The cost of the unfunded liabilities is projected to sky-rocket to between $3 and $6 billion per year, depending on market returns.

The 567-page budget deal contains a number of increased fees, an expansion of the state’s sales tax to include a number of different services, the establishment of several new commissions.

Lawmakers are set to debate the budget on Monday with only three days left in the session.

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Marc E. Fitch

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