A better budget, but not a game-changer
The $43.4 billion two-year state budget approved last week was a compromise deal struck within Connecticut’s divided one-party rule.
The negotiations were between the moderate Democrats, headed by Gov. Ned Lamont, and the progressive Democrats, who comprise almost half of the 92 members of the House Democratic Caucus.
The Republican minority, marginalized in the House and Senate by a drubbing in the 2018 elections, provided sideline criticism but were powerless to influence the outcome.
The 2020-2021 budget erases what had been a projected $3 billion deficit without reducing overall state spending. Spending actually increases by 1.7 percent, or $430 million, in 2020 and 3.4 percent, or $781 million, in 2021.
Signs of fiscal discipline in this budget are hard to find but preserving the largest reserve fund in state history is a big one. The budget establishes a $2 billion cushion in reserve against a recession. This is a laudable achievement.
How did the Democrats eliminate a $3 billion deficit without an income tax increase or spending reduction? Here are the big-ticket items that got them to the finish line.
New Taxes: The budget generates $340 million in 2020 and $365 million in 2021 by increasing services subject to sales tax and new fees on businesses.
Lamont wanted to expand broadly the 6.35 percent sales tax. The legislature limited the sales tax to digital downloads, laundry services, interior design services, safety apparel and parking. There is a new 1-percent tax on restaurant meals and beverages.
Retail outlets will pay a new 10-cents-per-bag tax on plastic bags. In two years, plastic bags will be banned in Connecticut stores. Until then, the tax raises $57 million.
Small and mid-sized businesses will pay an extra $50 million per year due to the reduction of an income tax credit.
Labor Savings: The budget assumes Lamont can negotiate $460 million in workforce savings with the employee unions. This is a tall order. Republicans, and The Day, are skeptical of this assumption. So far, unions have declined to accept new limits on annual inflation increases in pensions.
Refinance Debt: The state’s weak financial position is owed to a $70 billion unfunded pension liability for teachers and state employees. The new budget refinances the state's liability for the teachers, extending the payback from 12 to 30 years. That move shifts billions of dollars owed to be repaid – plus $1.9 billion interest - between now and 2049. Payments to the teachers’ pension would decrease $185 million each of the next two years. This might qualify as a structural reform, although it is an accounting adjustment that pushes heavy debt obligations out another generation.
Redirect Transportation Funds: The budget siphons $172 million earmarked for the Transportation Fund. In 2017, legislators approved diverting some sales tax receipts to the transportation fund. This budget recaptures those dollars for the General Fund.
Democrats delivered on two key campaign promises: establishing a paid family leave insurance program and increasing the minimum wage.
The family leave program provides up to 12 weeks’ pay to employees taking time off for family health issues. The program is funded by a .05-percent payroll tax.
The minimum wage bill boosts starting pay to $11 this year and escalates each of the next four years to reach $15 in 2023.
These are two important victories that will improve the lives of Connecticut’s working families.
Two large issues left unresolved on Lamont’s agenda were the “debt diet” he wants imposed on state borrowing for construction projects, and his wish to add tolls to Connecticut highways. Both issues will be addressed in a special session of the General Assembly this summer.
Shelved completely were plans to legalize marijuana, a public option for health insurance, a casino gambling solution and sports betting.
Lamont came to office in January pledging to bring “structural change” to Connecticut’s chronically cash-starved budgeting process. He said he did not want to “defer the tough choices we know we have to make. I want a real fix.”
Maybe a real fix is still in Lamont’s strategic plan, but there is scant evidence of it in this budget.
Lamont’s first budget enacted a couple of campaign promises, preserved a healthy budget reserve and showed a measure of restraint on spending and taxes. But it fell far short of the structural changes needed and Lamont said he intended to deliver.
Refinancing the pension debt obligations is a good move. But it does not address the more fundamental problem of unsustainable state employee pension and retirement health care costs.
Lamont will need to muster much more steely resolve than he has shown thus far to get labor back to the table and renegotiate retirement benefits.
The Day editorial board meets regularly with political, business and community leaders and convenes weekly to formulate editorial viewpoints. It is composed of President and Publisher Tim Dwyer, Editorial Page Editor Paul Choiniere, Managing Editor Tim Cotter, Staff Writer Julia Bergman and retired deputy managing editor Lisa McGinley. However, only the publisher and editorial page editor are responsible for developing the editorial opinions. The board operates independently from the Day newsroom.
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