Budget deal avoids big tax hikes

Agreement spares towns on pensions, wealthy on income taxes

HARTFORD — Towns and cities would not be forced to pay a share of their local teacher pensions, but owners of business partnerships would see higher taxes under the two-year, $43.8 billion state budget announced Thursday afternoon by Gov. Ned Lamont and majority Democrats.

The plan would raise taxes on wealthy families far less than Democratic liberals had wanted. There is no increase in the income tax at the top level, and there is no surcharge on capital gains — both ideas floated in recent weeks, which would have raised hundreds of millions of dollars.

Owners of multimilliondollar mansions would be hit with a surcharge under the legislation, raising less than $10 million, sources said.

With less than a week to go before the end of the session — and with no input from minority Republicans in the General Assembly — Democratic leaders agreed to a spending package that would include a multi-year phase-out of personal income taxes on retirement and Social Security income, in an attempt to keep retirees here.

During a news conference that aired scant, broad-brush details, legislative leaders said they want their caucus members to review the package before they release more. But they said a requirement that towns and cities for the

first time pay up to $70 million a year toward teacher retirement benefits was dropped from the final bill.

Both Lamont and the budget-writing Appropriations Committee had planned to force the new payment requirements on municipalities.

Lamont said schools will get more education funding and the most-distressed education systems would share $40 million in the first year of the budget that starts July 1.

A 2.5 percent surcharge would be assessed on the sale of homes valued over $2.5 million.

The sales tax would remain at 6.35 percent but would be broadened to include some goods and services that are now exempt. The list of added items includes parking, dry-cleaning and interior design, and totals about $50 million by the second year of the biennium.

The tax on partnerships such as LLC’s and LLP’s would raise about $45 million a year, sources said, by piggybacking on a tax change last year under which the owners of those businesses paid a tax on profits at the business level, rather than as personal income. Under the change, they would be forced to pay some income taxes in addition to the profits tax, although details were not available.

Despite the additional revenues, Lamont said the $3.5-billion budget deficit was addressed without raising taxes — meaning rates on existing taxes.

“I spent last year, during the campaign, saying the most-important thing we can do as a state to get this state growing and moving again, is to show people that we can get our fiscal house in order; show people that we can get a budget done on time; show the taxpayers of this state that we can live within our means,” Lamont said, flanked by legislative leaders and his staff, standing at a podium in his Capitol office.

Hundreds of millions of dollars in the current $571 million operating surplus would be diverted from the projected $2.6-billion budget reserve. Lamont has said all along that he wanted to avoid using the surplus money to fill the budget gap. Details were not available Thursday.

“Our cities, our mostdistressed schools, are going to get more money,” Lamont said, stressing that $40 million in the first year would be supplemented by $80 million in the second year. “I think you’re going to see in this budget that we’re finding significant savings in employee health care costs,” he said, pegging a $45 million savings in the first year, and another $105 million in the second year.

The state’s fragile Teachers Retirement Plan would see an additional investment of $381 million, extending the payments out in a 17-year re-amortization to avoid a multibillion-dollar cliff payment within the next few years.

Another $160 million of the surplus would be paid to state hospitals, under a compromise plan to end litigation that began during the administration of former Gov. Dannel P. Malloy.

Another 4,000 people would be covered under the state’s federally funded Medicaid program. “So slowly over time we can provide universal health care that is a right people deserve,” Lamont said.

“There are things that we really needed to address in this budget and we believe we have,” said Senate President Pro Tempore Martin M. Looney, D-New Haven. “We’re confident that we will be done within the next few days.”

Republicans, left out of the talks, said they still had not seen any details. “Zero,” said Sen. Len Fasano, R-North Haven, the Senate GOP leader. He said the increased taxes on LLC’s is an example of irresponsible budgeting.

“This is the problem when these guys take a majority and they run the budget the way they want to run it, they have no common sense with respect to the Connecticut economy, it’s a money grab,” Fasano said. “That’s why when we did our bipartisan budget, it’s the first time in ten years that we’ve had a surplus without having to monkey with it. And now they’re going back tp the old budgeting of the past, which is doomsday for the state of Connecticut.”

Speaker of the House Joe Aresimowicz, D-Berlin, called the budget a good example of a team approach, including the governor’s office. He said that the start of the six-to-seven-year phase-out on retirement income, first mentioned by Democrats several years ago, would finally go forward.

Melissa McCaw, who as secretary of the Office of Policy and Management is Lamont’s budget chief, said the $3.7 million budget deficit that met the governor when he took office in January, was erased in the balanced budget. She said that $2 billion will still be saved in the emergency reserves.

She said that when a settlement is reached with the hospitals, a special session would have to be called to codify the deal.

Senate Majority Leader Bob Duff says the budget would encourage retirees to stay in the state, and retains levels of education funding. “By and large this budget is one that should really be supported by all members of the legislature,” he said. “We’re making some really tough decisions, but we do some really great things for today and for the state of Connecticut.”

Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance, told reporters on Thursday that social service providers have been lobbying the General Assembly for $100 million from the emergency reserves to help providers bridge the gap creating by lagging Medicaid rates.

“We’re making a plea to the legislature and the governor that you have a chance to catch up,” Casa said during a news conference in the Capitol a couple hours before the budget deal was announced. “Medicaid rates don’t keep up with costs and that’s a non-sustainable situation. It’s a frustration that our members feel. If not now, with a $2.6-billion rainy day fund, when?”

The budget doesn’t appear to have included the nonprofit assistance.