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CT House GOP wants to put 2 fiscal guardrails in state constitution

Rep. Holly Cheeseman and House Minority Leader Vincent Candelora (both at podium) discuss new budget proposals at Legislative Office Building. Reps. Tom O’Dea, Rachel Chaleski and Francis Cooley (left to right) are in background.
Keith M. Phaneuf
CT Mirror
Rep. Holly Cheeseman and House Minority Leader Vincent Candelora (both at podium) discuss new budget proposals at Legislative Office Building. Reps. Tom O’Dea, Rachel Chaleski and Francis Cooley (left to right) are in background.

Minority Republicans from the state House of Representatives unveiled a package of budget proposals Thursday, topped by a call to add two of the new fiscal guardrails into the state Constitution to shield them from tampering.

The GOP also renewed an earlier proposal to create a new state income tax deduction for households with children and pitched a cut in the payroll tax that supports the Paid Family and Medical Leave program, an initiative that has amassed huge reserves since its enactment in 2019.

“We can’t continue to just have conversations about spending,” House Minority Leader Vincent J. Candelora, R-North Branford, said during a late morning press conference in the Legislative Office Building. “We recognize that the residents of Connecticut are still suffering. It is still unaffordable for people. Their grocery bills are higher. Their electric bills are higher, and so we would like to begin to chip away at that.”

But House Republicans argued the first step is to ensure state government continues to save money and control its spending.

The caucus is focused on two specific fiscal safeguards first enacted in 2017 and renewed last February: A “volatility adjustment” that bars lawmakers from spending a portion of quarterly income and business tax receipts that vary sharply from year to year, and a “revenue cap” that requires legislators to build a significant surplus into each annual budget by limiting spending to 98.75% of estimated revenues.

Lawmakers have pledged in contracts with the state’s bondholders not to repeal these provisions before mid-2028 or to alter them, except through a very restrictive process. They can be adjusted if the governor declares a budget emergency and if three-fifths of the House and Senate agree.

But Democratic legislative leaders already expressed concerns that these guardrails are savings excessively, and causing some core education, social service and health care programs to erode dangerously. If some flexibility to spend more is not possible, they warned, the guardrails eventually would go away.

A Connecticut Mirror analysis found that the volatility adjustment alone has saved an average of nearly $1.3 billion per year in its first seven years of existence. It also found the state’s definition of volatile revenues was based heavily on receipts from the 2016-17 fiscal year, when taxes under-performed significantly.

But Candelora said a constitutional amendment would eliminate any threat of repeal in 2028.

He conceded that these guardrails are making it harder to fund some programs and could even restrict town aid in future years. But the GOP leader quickly added legislators could avoid all of those problems — and keep the guardrails as designed — by removing wasteful or inefficient spending in other areas.

These, he said, include reforming administrative and other expenses at public colleges and universities; securing a better return on pension fund investments; and reforming arbitration systems to better control the growth of employee wages and benefits at the state and municipal levels.

“This comes down to spending priorities,” Candelora added, and “we have seen the benefits of this volatility cap.” He noted noted this savings program has played a major role not only in elevating the state’s budget reserve to a historic $3.3 billion but also to eliminating an extra $7.7 billion in pension debt since 2020.

Senate Minority Leader Kevin Kelly, R-Stratford, praised his GOP colleagues for their proposals.

“It is undeniable: Connecticut is unaffordable for poor, working-class and middle-class families,” Kelly said. “People are struggling to pay for groceries, electricity and health insurance. Families are living paycheck to paycheck. We must do more to help lower the heavy financial burdens on Connecticut residents. Republicans will continue to talk about solutions, fiscal responsibility accountability and why we must respect the sacrifices of taxpayers.”

Gov. Ned Lamont’s spokeswoman Julia Bergman endorsed House Republicans’ passion for the guardrails without weighing in on the question of a constitutional amendment.

“It was just a year ago that Gov. Lamont and legislative leaders made a commitment to extend the state’s fiscal guardrails, which have greatly contributed to the state turning its fiscal house around,” she said. “The governor appreciates the minority leader’s support of the guardrails.”

But House Speaker Matt Ritter, D-Hartford, said he understands how beneficial the guardrails have been but an amendment is not the way to go.

“They are very much, in my mind, best handled statutorily, because conditions change,” he said, adding that one of the legislature’s chief functions is adopting the state’s budget, and “legislatures need to have different tools at their disposal at different times.”

“We need some flexibility,” added Senate President Pro Tem Martin M. Looney, D-New Haven, who called a constitutional amendment in this case “the worst public policy imaginable.”

House GOP offers several tax-cutting ideas

But while the guardrails have helped state government’s coffers to grow flush, many Connecticut households still struggle with inflation, said Rep. Holly Cheeseman of East Lyme, ranking House Republican on the tax-writing Finance, Revenue and Bonding Committee.

This is what our residents are facing every day,” she said. “When you go to the grocery store. When you replace your car battery. When you’re buying nails to do home improvements. We have seen record increases in the cost of living.”

The House GOP hopes to return close to $150 million annually to residents through new tax-cutting proposals.

The largest cut, which would yield about two-thirds of the total pledged relief, involves reducing an existing state payroll tax from 0.5% to 0.4% of a worker’s gross earnings.

Lawmakers and Lamont created this tax in 2019 to fund a new paid leave program, but Republicans noted the program is operating with a huge surplus.

According to data from state Comptroller Sean Scanlon’s office, the program had enough resources to cover all $353 million of its expenses last fiscal year and still finished with a $107 million surplus.

Since it was created five years ago, its total net position tops $547 million.

Looney cautioned against this tax cut, saying the medical leave program hasn’t been in place that long, and noting Republicans had questioned five years ago whether a 0.5% tax hike would yield sufficient revenues to sustain it.

Republicans also proposed a child tax deduction within the state income tax, allowing families to deduct $2,000 per dependent child from their taxable income.

The state income tax has seven different rates, ranging from 3% to 6.99%, but much middle class income is taxed at 5% or 5.5%.

A $4,000 deduction — for a family with two children — would save filers $200 if those earnings were taxed at 5% and $220 at 5.5%.

But poor families with little or no state income tax liability would benefit by a small margin or not at all, because once deductions reduce tax liability to $0, they don’t increase a filer’s potential refund.

Other elements of the House Republican plan include:

  • Reducing the sales tax on certain expensive car purchases from 7.75% to 6.35%. This would apply to vehicles priced between $50,000 and $70,000.
  • And exempting all children’s clothing items costing less than $100 from the sales tax.

Chris Collibee, spokesman for Lamont’s budget office, noted the governor would propose his own adjustments next Wednesday to the preliminary $26 billion budget adopted last June for the 2024-25 fiscal year.
“The administration looks forward to a robust discussion with legislators on both sides of the aisle about how to make Connecticut a more affordable place to live and work,” Collibee said, adding that “any proposals must adhere to all constitutional and statutory caps.”

Launched in 2010, The Connecticut Mirror specializes in in-depth news and reporting on public policy, government and politics. CT Mirror is nonprofit, non-partisan, and digital only.