Legislative adjournment a month away, with no budget deal

With only a month left in the legislative session, majority Democrats are on the verge of budget negotiations with a governor who has drawn a line in the sand against new taxes.

Democrats in the state Senate on Friday pressed their case for a proposed $1.4 billion hike in taxes on the state’s wealthiest residents, but Gov. Ned Lamont is still opposed to it.

Democrats this week gave their budget ideas to Lamont’s staff and expect to hear back next week.

It could be a long summer if the General Assembly’s June 9 adjournment deadline passes without a budget, or the July 1 fiscal year starts without an agreement, and then Lamont determines his own middle-of-the-road spending plan until state lawmakers reach a compromise in a summer special session. The result could be an ugly intra-party test of political wills the year before Lamont is up for reelection.

Senate President Pro Tempore Martin M. Looney and Sen. John Fonfara, the veteran co-chairman of the Finance, Revenue & Bonding Committee, say this should be the year for Connecticut to establish a social equity fund, using higher taxes on the wealthy to help pay for programs for Black and brown communities that are falling further and further behind economically.

Lamont is opposed to raising taxes, and wants to keep the state competitive with its neighbors at a time when Connecticut is about to emerge from the more-than-yearlong COVID pandemic.

Looney, D-New Haven, during a virtual news conference on Friday morning that was noticeable for its lack of any House Democrats, said he’s looking forward to a “vigorous debate” on the issue with Lamont.

“It is very important to recognize that in the wake of the pandemic and in the wake of our commitment last year to a Juneteenth agenda of greater equity, greater progressivity, greater concern for social justice, that we have a tax code that matches that commitment and that principle,” Looney said. “We can’t pretend that things are normal when we have the equivalent of a four or five-alarm fire going on in many of our communities.”

A new tax on the richest state residents would be focused on those with adjusted gross incomes (AGI) of half a million dollars or above. It would range from 0.7 percent for taxpayers with federal AGIs between $500,000 and $2 million, to 1.5 percent for taxpayers with AGIs of $13 million or more.

The legislation would include a new 2-percent surcharge on capital gains, bringing the total rate to 8.99 percent, which would raise $262 million in the fiscal year starting July 1, 2022, according to the nonpartisan analysis of the legislation. The surcharge would apply to investment income for single tax filers with AGIs of $500,000 or more and a million dollars for joint filers.

The legislation, including a new $600 per-child tax credit, barely survived in the Democrat-dominated Finance Committee’s 26-22 vote last month, and Lamont has said he would not support the taxes if they won approval in the House and Senate and reached his desk. Max Reiss, the governor’s communications director, said Friday his budget proposal includes major initiatives in urban centers, supplemented with American Rescue Plan funding from Washington.

“Gov. Lamont, through both his prepared state budget and his Connecticut Recovery Plan, frees up hundreds of millions of dollars and historic levels of investment in programs like free free and affordable child care, access to free summer enrichment programming,” Reiss said in an interview. “And just yesterday, the governor reiterated his commitment to hundreds of millions of dollars in our most under-served communities. The governor is proposing to achieve all this without tax increases, which he believes is the best direction for the state of Connecticut.”

Fonfara, D-Hartford, said the proposed equity fund would help people with prenatal care until the end of life. “With these additional resources, the state has the ability to invest in people and projects simultaneously. This is about policy and what kind of state we want.”

Looney and Fonfara said their proposal goes well beyond the two years of funding included in the American Rescue Plan, upon which Lamont is depending for his major initiatives. Looney said that negotiations will go forward. “We are prepared for a vigorous policy debate,” Looney said.

During an interview earlier in the week, Speaker of the House Matt Ritter acknowledged a split between Lamont and Democratic majorities in the legislature on taxes. Democrats this week presented their budget documents to the governor’s office. “I think they expect to get back to us next week,” he said.

Senate Minority Leader Kevin Kelly, R-Stratford, said Friday that with the governor’s mileage tax on heavy trucks, along with a climate initiative that will add to the pump price of gasoline and fuel oil, a heavier burden could be placed on lower and middle-income residents who, unlike the rich, cannot afford to move to tax havens.

“We are dead-last in job growth and personal income growth,” Kelly said. “There is no upward mobility. When the large taxpayers leave, they take the revenue that leaves a hole that gets filled by the middle class. We can’t afford it. At a time when we have a budget surplus and $1.7 billion from Washington, asking anyone to pony up more taxes is just not right.”