The state Senate approved a two-year, $43 billion budget Tuesday night with Democrats hailing the plan as fiscally prudent and Republicans blasting the package as a bad deal with too many tax increases.
The 567-page budget, which passed in the House of Representatives late Monday night, closes a projected deficit of $3.7 billion over two years and funds a wide variety of programs. The spending increases of 1.7 percent in the first year and 3.4 percent in the second year are lower than in some past years.
After nearly eight hours of debate, the Senate voted 20-16 with two Democrats — freshman Alex Bergstein of Greenwich and veteran Joan Hartley of Waterbury — joining with the Republicans against the package.
The budget does not increase the rates of the income or sales taxes and includes no reductions in state aid to cities and towns. The budget would also expand the state’s 6.35 percent sales tax to include parking, dry cleaning, laundry and interior design services, but coin-operated laundries would be exempt.
“This budget is fair, balanced, promotes economic growth and support for working families, and was delivered on time, enabling our towns and cities to know what they can expect in their budgets over the coming biennium and plan accordingly,” Lamont said in a statement. “Most of all, it further stabilizes our state’s finances, sending a signal to residents and businesses alike that we are serious about getting our economy growing again.”
Lamont added, “Let’s be clear: There is still more work to do. But I am proud of this budget and the steps it takes to get Connecticut back on track.”
Democrats noted the state’s rainy day fund will likely reach more than $2.6 billion if current revenue trends continue — far surpassing the record high of $1.38 billion more than a decade ago. Much of that money was related to growth in the stock market in recent years, along with one-time money related to tax breaks for hedge funds that led to large payments from Fairfield County investors.
But Republicans said the plan lacks a long-term, strategic vision to help small businesses, create jobs and kick-start the state’s slow-growth economy.
Senate Republican leader Len Fasano of North Haven said Republicans were never invited to any formal budget talks, even though Democratic Gov. Ned Lamont had said repeatedly that his door was open in his initial months as the new governor. He said the budget is already out of balance before the fiscal year starts because it relies on state-employee savings that have not yet been realized, but Lamont expressed confidence in reaching the savings.
“The amount of taxes and fees in this budget sends the wrong message,” Fasano said. “If you get a soda at a restaurant — just a soda — you’re going to be charged more. … This is the wrong direction. We can do better.”
But Senate President Pro Tem Martin Looney, a democrat from New Haven, said the budget is a solid package that provides major funding for public education that provides funding predictability for cities and towns that have been uncertain about threatened state cuts in the past. Money is also set aside for job creation, workforce development and juvenile justice in a package that is lower than the bonding cap and spending cap, he said.
“I think Senator Fasano and I are not reading the same document,” Looney said. “This is a strong and forward-thinking document.”
The budget repeals the much-criticized business entity tax that both Republicans and Democrats have tried to eliminate in recent years. The $250 tax is paid every two years by most businesses. But the budget also increases the filing fees for limited liability companies and limited liability partnerships.
The total tax increase in the budget is nearly $2 billion over two years, including more than $1 billion from taxes charged to hospitals in a complicated arrangement that involves increased federal funding and then sending some money back to the hospitals.
Some of the biggest revenue increases include nearly $100 million over two years by maintaining the surcharge on the corporate profits tax and $100 million related to the pass-through entity tax, paid by owners of limited liability companies, partnerships and other privately held businesses. Democrats said that 80 percent of the money collected from the pass-through entity tax will be paid by wealthy people earning more than $500,000 per year, including about 63 percent paid by those earning more than $1 million per year. They said that owners will still save money compared to their tax situation several years ago.
“I believe this is more than a fair package,” said Sen. John Fonfara, a Hartford Democrat who co-chairs the tax-writing finance committee.
The fiscal plan also increases the sales tax on digital downloads, such as movies or online books, to 6.35 percent, up from the current rate of 1 percent, which would generate $64.6 million over two years.
But deputy Senate Republican leader Kevin Witkos of Canton said he sees problems with a wide variety of taxes, including 10 cents for each single-use plastic bag that is purchased at a retail store. At the same time, the legislature is also mandating that stores cannot charge anything for paper bags.
“It’s death by a thousand cuts,” Witkos said. “We’re bleeding the people of Connecticut dry. … There’s a tax on vaping products. The alcohol excise tax. We should have learned through the boating industry that if we reduce taxes, we make more money.”
The package includes a so-called mansion tax of 2.25 percent on homes that sell for more than $2.5 milllion, but sellers who remain in Connecticut would be able to get the conveyance tax back through credits on their state income tax.
But Witkos said he believes the tax is unconstitutional — by essentially charging some sellers and not others — and he predicted that a future seller will file a civil lawsuit to overturn the tax.
Sen. Rob Sampson, a Wolcott Republican who works as a real estate agent, said the real estate fee is actually “an exit tax” that is “a penalty for anyone leaving the state.”
The state, Sampson said, needs spending cuts instead of “more Band-Aids, more corporate welfare, more taxes.”
The bill also calls for increasing the membership of the powerful Public Utilities Regulatory Authority to five members, up from the current three, with all appointments made by Lamont. Commissioners on the authority can earn as much as $170,000 per year in what many insiders consider as a plum, patronage job with lucrative benefits that Republicans said could push the package to more than $240,000.
Both Republicans and Democrats said one of the appointments would be set aside for Nick Balletto, the former Democratic state chairman who was ousted by Lamont in December as the party’s leader but has not publicly criticized Lamont since then. The Lamont administration said the authority was being expanded, not as a political favor to Balletto, but to go back to its original, five-member board before it was reduced to three by Gov. Dannel P. Malloy. Former Republican gubernatorial candidate Bob Stefanowski, who lost to Lamont, said on a radio program Tuesday that Balletto would be joining “a board that’s already dysfunctional.”
Lamont had pushed for an asset test for the Medicare Savings Program, which helps low-income individuals to pay for their premiums, deductibles and prescription drugs that are not covered by Medicare. But the legislature rejected the asset test and funded the program.
The Senate began debating the budget at 2 p.m. Tuesday and continued past 9 p.m. Passing the budget is a major accomplishment for Lamont, who is preparing to deliver a post-midnight speech after the legislative session ends Wednesday night. During times of clashes with legislators, Malloy sometimes skipped the traditional end-of-session speech.
While many programs are funded across state government, the nonprofit organizations that provide state services are still seeking additional funding.
“The state’s coffers are no longer empty, and it is time for the legislature to restore funding for the community nonprofits that half-a-million people across the state rely on,” said Gian-Carl Casa, a former state budget official who now heads a nonprofit alliance. “We will continue to ask: If the state cannot restore funds when surplus dollars are available, when can the funds be restored?”
One of the most controversial tax increases in the budget concerns owners of limited liability companies and other pass-through entities that Democrats said received major tax breaks under President Donald Trump. Democrats said the tax increase is targeted at wealthy people, although Republicans said that landscapers and other small business owners also operate LLCs. A small business earning about $50,000 per year would have an increased tax bill of $170 per year under the plan, lawmakers said.
“This is going to hurt the middle-class people of Connecticut,” said Sen. Gennaro Bizzarro, a New Britain Republican. “There can be no debate about that. … So the brother and sister who own a Mexican restaurant in my city of New Britain … we are going to raise their Connecticut income taxes by a half a percent. … It’s every restaurant, every deli, every diner, every laundromat, every clothing store, every ice cream shop, every bowling alley, every law firm, every health care practice which operates as a partnership.”
There are no changes in the state’s popular property tax credit, which would remain at a maximum of $200 per year for senior citizens and those with dependents. The bill does not include proposals for a 2 percent tax on groceries, a complicated plan to enact a payroll tax or increased taxes on the investment income of the state’s wealthiest residents.
While an earlier proposal for a tax of one cent per ounce on sugary beverages has been discarded, a new 1 percent tax would be charged on all prepared foods, including soda dispensed from a fountain at a fast food restaurant. Those items are already subject to the 6.35 percent sales tax. The additional 1 percentage point tax on prepared foods is among the biggest revenue raisers of the package, generating about $114 million over two years. Lunches in school cafeterias would be exempt.
The plan also calls for debt-free community college in the second year of the budget. The program is contingent upon funding from a new online lottery.
A 10 cent fee would be charged on single-use plastic bags beginning in August, and they would be banned starting July 1, 2021.
In addition, the excise tax on alcoholic beverages, excluding beer, would increase by 10 percent. The fee that ride-sharing companies like Uber and Lyft must pay to the state for each ride would increase from 25 to 30 cents.
Christopher Keating can be reached at ckeating@courant.com.
