Gov. Ned Lamont proposed his biennial budget to Connecticut lawmakers, a spending package that includes income tax rate cuts and spending initiatives to help stem growing labor shortages in critical fields.
“Connecticut has enjoyed strong economic and population growth,” Lamont said Wednesday. “Building off this momentum, my budget continues to grow the economy through a middle-class tax cut and investments in our young families.”
The $50.5 billion budget covers the fiscal years 2024 to 2025 and would be the fifth consecutive balanced state budget, an accomplishment Lamont attributed to sound fiscal policy and solid tax revenue growth.
As a result, the governor said he was proposing the first personal income tax cuts since 1996, targeted at working-class residents making between $50,000 to $150,000 annually.
Currently, Connecticut residents are taxed 3% of their first $20,000 in income and 5% of their income up to $100,000 a year. Lamont’s proposal would cut the current 5% rate by 10% and the 3% rate by a third.
“We’ve had a number of false starts, on-again, off-again tax cuts; not this time,” he said, adding that “for those families most in need” he wanted to go a step further.
Lamont also proposed a 31% increase in the earned income tax credit, calling it “one of the “most impactful things we can do to target direct relief to more than 200,000 low-income workers.”
The two reforms taken together would mean families earning less than $50,000 a year will pay no state income tax whatsoever, and Lamont estimated the total savings to middle-class taxpayers in the state would be $500 million annually.
The governor also wants to prepare the state for new growth and economic development and established a $20 million trust fund for the construction of “worker housing” to accommodate an increase in population.
“Last year we built more market rate and affordable housing than any time this century, yet we are still desperately short of housing,” he said. “The housing trust fund will allow developers to move quickly, with an emphasis on multi-unit housing in downtown areas close to transportation.”
Lamont estimated the state would need to construct 6,400 units over the two years covered by the budget and also urged lawmakers to develop plans of their own for more housing options in their community “through friendlier zoning and expedited approvals.”
The spending proposal also looks to rapidly fill growing shortages in certain in-demand professions, by cutting certification times, incentivizing employers to offer training programs, and continuing a credit that helps college graduates working in the state pay down their student debt with their employer’s help. The programs cover fields including manufacturing, healthcare, information technology, and transportation.
The budget would also increase education spending, leveraging $720 million in federal funds to help recruit and retain teachers, as well as $10 million in flexible grants for school districts to spend on the needs of their local systems.
Lamont urged lawmakers to approve a ten-year extension of a series of bond covenants and spending caps established in 2017, to which he attributes the growth in the state’s reserve fund to $4.7 billion.
“One of the smartest actions the General Assembly has taken over the past decade is the enactment of the fiscal guardrails that have provided predictability and stability to our budget process,” he said. “Every dollar we eliminate from fixed costs are dollars we can use to provide tax relief and additional services to the residents of our state.”
The state has enjoyed multiple bond rating upgrades in recent years, the most recent in November when S&P lifted Connecticut general obligation bonds to AA-minus.
They are rated AA-minus by Fitch Ratings, Aa3 by Moody’s Investors Service and AA by Kroll Bond Rating Agency.