Lamont budget includes $500M in tax relief

On Feb. 8, Gov. Ned Lamont presented lawmakers with a $50.5 billion two-year budget that delivers more than $500 million in annual tax relief, topped by the first major cut in state income tax rates in Connecticut history. Here’s what you need to know about the budget.

Largest income tax cut in CT history

Gov. Ned Lamont wants to save middle-income households $440 million annually starting next year by ordering the first state income tax cut since the mid-1990s.

Connecticut taxes most income using a blend of up to seven different rates. For example, a couple earning $110,000 annually would be charged 3% on the first $20,000 in adjusted gross income, 5% on the next $80,000 and 5.5% on the final $10,000 of AGI.

Lamont proposed reducing the two lowest rates starting in January 2024: 3% would become 2% and 5% would become 4.5%. The administration estimates this would save filers $436 million annually, with 1.1 million of Connecticut’s 1.7 million tax-filing households benefiting. The administration says many middle-income couples would save as much as $600 per year, while most middle-class singles would save close to $300.

Higher education aid would decrease

Though Lamont’s proposed budget technically increases “baseline” appropriations for the University of Connecticut, the regional state universities and community colleges, overall aid for all higher education units would shrink over the next two fiscal years.

Lamont’s budget would effectively channel $887 million over the next two fiscal years combined to UConn, the state’s flagship university. That includes not only the main campus in Storrs and its satellite campuses but also the university’s health center in Farmington.

The $887 million specifically includes a $776.4 million baseline operating grant for the coming biennium. The rest involves the last of the state’s ARPA funding to give the university a “glide path” to adjust to life with no emergency federal aid after 2025.

But while UConn’s baseline grants totaled $753 million across this fiscal year and last, overall operating assistance — once temporary aid is counted — came to almost $1.1 billion. Similarly, baseline operating aid for the regional state universities and community colleges increases under the governor’s plan from $693 million in the current biennium to $755 million for the next two fiscal years. But once temporary aid is considered, overall assistance for the regional universities and community colleges falls over the same period from $1.04 billion to $923 million. The budget does include $15 million to continue the state’s debt-free community college program for another two fiscal years.

More funds for Education Cost Sharing

The new budget would maintain a program first approved in 2017 to increase the Education Cost Sharing program — a method the state uses to distribute state education funding — significantly by 2027.

Lamont’s budget would increase the $2.2 billion ECS program by $46 million annually starting July 1. Grant funding would rise to $91 million above current levels in the second year of the biennium. But Democratic legislators argued last month that the state has resources to accelerate the ECS expansion.

Lisa Hammersley, executive director of the School and State Finance Project, also said the governor’s budget doesn’t adequately respond to the needs of school districts across Connecticut.Administration officials have countered on several occasions that not only is ECS funding on the rise, but it is doing so while the student populations in many schools have been shrinking. Connecticut’s population for kindergarten through grade 12 fell by about 25,000 students between 2017 and 2021, according to the administration.

Renewal of ‘guardrails’

Lamont’s budget hinges on a bipartisan deal he reached earlier this month with legislative leaders to renew state caps on spending and borrowing, as well as savings programs that limit the state’s ability to spend volatile tax receipts tied to investment earnings or to craft budgets with little to no fiscal cushion. Connecticut pledged five years ago in bond covenants — essentially the state’s contracts with the Wall Street investors who buy its bonds — not to adjust the spending controls, except under very limited conditions, through June 30. ,