The General Assembly expects to vote as early as this week on an extensive package of tax cuts and spending adjustments as they push to finish their work before the legislative session adjourns on June 7.
The nonprofits are key players because they hold contracts to run operations, such as group homes, at a far lower cost than state employees who often have better salaries, pensions, and benefits.
But nonprofit leaders say that their increases have been far below inflation over the past decade, and they are seeking increases of 9 percent in the first year of the budget and 7 percent in the second to make up for the impact of inflation.
House Speaker Matt Ritter of Hartford, one of the key players in the talks, said the budget is not yet finalized but negotiators are looking at 2.5 percent annual increases that will increase when all funding is included. That provides a sharp contrast to the budget-writing appropriations committee that called for an increase of 1 percent.
“I would generally describe it as we think we get somewhere above 3 percent in year one, mindful that we were at 1 percent in the original budget,” Ritter told reporters. “And I think when you couple that with the funds we provided last year, I know it’s not 7 percent, which is the ask, but we feel like we’ve listened to them. So, the folks that are protesting, we’ve heard you. We can’t get all the way to 7 because there’s other things in the budget like (education cost-sharing) that people care about. … I think we believe overall in the budget we’re over 3 percent.”
Ritter, Gov. Ned Lamont, and Senate President Pro Tem Martin Looney of New Haven — three of the most powerful players at the Capitol — have all pledged support for the nonprofits after the initial funding recommendations.
But the nonprofits say that 3 percent would not be enough.
Gian-Carl Casa, a former top state budget official who now heads the Connecticut Nonprofit Alliance, said nonprofits have been hit hard.
“We appreciate that the numbers are more than what was proposed in the original budget proposal, but it’s still insufficient,” he said in an interview.
“Programs will be curtailed. Waiting lists will grow. People will lose jobs. That’s what will happen at that number. There’s already a workforce crisis for nonprofits, and a lot of that is because they cannot afford to pay competitive wages,” he said. “That doesn’t change without significant funding increases, which means that fewer and fewer people are going to be working for nonprofits and that means fewer and fewer programs for people who need them. I don’t take any pleasure in saying that. It’s just fact.”
In an ongoing lobbying campaign by the nonprofits, about 1,200 people converged on the Capitol last Wednesday as organizers handed out 1,000 T-shirts and stickers to gain attention while both the House and Senate were in session. Those advocates are talking to their legislators in communities across the state in an attempt to sway votes in favor of more funding.
A key lobbying point by the nonprofits is that the money should be available because the state has been running up record budget surpluses in recent years. Last year’s operating surplus was $4.3 billion, and the latest statistics project that the surpluses in the current fiscal year will be $1.6 billion in the general fund and another $268 million in the once-troubled Special Transportation Fund. The state’s rainy day fund for fiscal emergencies is expected to reach $6.25 billion later this year before an expected transfer of $2.9 billion to the state’s long-underfunded pension funds.
But Ritter and others say the broader issue is that legislators want to avoid the boom-and-bust cycles that lead to spending increases in one year, followed by decreases when times are bad. Instead, they want sustainability in funding. They also are constrained by the bipartisan fiscal guardrails that were created by lawmakers in the historic budget of 2017 when Republicans had more power because the 36-member Senate was tied with 18 members of each party.
“I think what we want to do is avoid the mistakes of the past,” said House Majority Leader Jason Rojas, an East Hartford Democrat. “The fiscal guardrails sure are preventing us from spending more than we want, but those are also dollars that came in this year that may not be there next year. So, we make a commitment to a group of people, they have confidence that it’s going to be there, and then suddenly the finances change.”
An example, Rojas said, was that the recent consensus revenue estimates came up short by about $500 million because Wall Street did not perform as well as expected. Wall Street had a record year in 2021, leading to huge amounts paid in capital gains taxes through the state income tax, largely by Fairfield County millionaires and billionaires. But the markets took a downturn in 2022, and have remained volatile due to issues such as global instability, the Ukraine war, and the federal negotiations over the national debt ceiling. The stock market went up Friday as optimism increased among some on the debt limit talks.
House Republican leader Vincent Candelora of North Branford said his caucus pushed for 2.5 percent increases when they recently released their recommendations, about three months after Lamont’s original budget.
“We wanted to make clear it’s a priority for us that these nonprofits continue to be funded,” Candelora said. “I think 3 percent is helpful. One of the things we have to look at is long-term sustainability. This is an ongoing expense that Connecticut is going to incur. We need to make sure that we continue to prop them up each year. We can’t ignore them and do the 0 percent that we have done in the past.”
At the same time, Republicans are still pushing for a $2,000 income tax deduction for children for the first time in state history. Historically, Republicans have wanted to keep the state income tax as simple as possible and have pushed to avoid deductions that are available at the federal level.
The tax package, however, has not been finalized as Lamont did not include the child tax deduction. Instead, Lamont is pushing for a broad-based reduction in the state income tax and improvement in the pass-through entity tax that is designed to help small businesses that operate as limited liability corporations and other partnerships that currently receive tax breaks through the state tax that was created in 2018 as a response to a federal tax increase during the administration of then-President Donald J. Trump.
“All those items are still on the table,” Candelora said of the tax package.
The final spending numbers are not yet set, but negotiators are operating in a relatively narrow range.
The budget committee’s bill called for spending $50.96 billion over two years, compared to $50.54 billion by Lamont. That would translate into an increase of 3.7 percent in the first year and 3.2 percent in the second year, officials said.
The spending is expected to be about $25 billion per year, compared to the state’s appropriated budget in the current fiscal year of $24.19 billion, including $22 billion in the general fund.
Lamont told reporters that professionals at the nonpartisan Office of Fiscal Analysis and the state’s Office of Policy and Management are double-checking the numbers to make sure they are under the state’s spending cap. Lamont has repeatedly urged that the legislature must follow the fiscal guardrails and avoid accounting gimmicks.
“I think we’re very close,” Lamont told reporters. “Right now, all the numbers that we agreed to are going through the OFA and OPM mill, which means making sure the numbers as presented add up in an honestly balanced budget.”
While lawmakers and staff are working feverishly to finish the budget before the June 7 adjournment, they also are looking to the future.
“The problem six, seven, eight years ago is you give someone a lot of money and you cut it back the next year,” Ritter said. “This budget not only is, we think, sustainable, but it continues policies from last year. It continues capping the car tax at 32 (mills) in the cities. It continues the earned income tax credit. It goes even higher. So, in our view, it’s not just this year. You have to look at: are we stable enough to continue policies? And we will always try in the next year to find more funding for the nonprofits.”
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