Gov. Ned Lamont pitches tolls, union giveback and an expanded sales tax to close a two-year, $3.7B deficit

From highway tolls and a sugar tax to a plastic bag surcharge and a union giveback, Gov. Ned Lamont delivered his budget to the General Assembly Wednesday and made a series of contentious recommendations that he said will create “a path forward” for the state.

Lamont’s proposed $43 million, two-year budget, relies on new revenue and largely preserves state services without raising the income or sales taxes.

Adding dozens of items and services to the state’s 6.35 percent sales tax would generate more than $1 billion in new revenue over the next two years, Lamont estimated. Tolls could add another $1 billion each year if they are enacted.

Lamont addressed a joint session of the legislature, the first major test for the Greenwich telecommunications magnate since transitioning from the board room to the spotlight of being governor of a state with projected budget deficits of $1.5 billion and $2.2 billion in the next two years.

“I will not allow this budget to be another scene from ‘Groundhog Day,’ where I come to you year-after-year hat-in-hand lamenting the fact that we still haven’t addressed our structural deficits,” Lamont said. “The fiscal crisis before us is not just a short-term hole in the budget. We are digging that hole deeper by $400-$500 million annually, due to fixed costs such as pensions, state employee healthcare and bonded debt — all growing faster than our economy. Most of these fixed costs pay for the past rather than investing in our future.”

During a 34-minute address, Lamont delivered a sober speech to a relatively quiet crowd that was far less raucous than his opening day address last month that was filled with optimism and good cheer in front of a new legislature. The budget presentation Wednesday featured the tough medicine of tax increases and tolls that drew mixed reactions from legislators. Lamont received two standing ovations from Democrats when he mentioned raising the minimum wage to $15 per hour and creating a new paid family and medical leave program, while Republicans sat silently in their chairs.

Although Lamont briefly mentioned his support for legalizing sports betting and recreational marijuana, his budget documents do not account for any money from those items – and also mention nothing about a statewide property tax on cars or a 2 percent sales tax on groceries.

In the cavernous Hall of the House, some Republicans drank from large plastic containers of soda to show their opposition to Lamont’s proposed tax on sugary drinks. While soda is the best-known item, the tax would also apply to sports drinks, energy drinks, ready-to-drink tea and coffee, enhanced water, and fruit drinks in a measure that would raise $163 million in the second year of the two-year budget.

House Republican leader Themis Klarides denounced the budget, saying that under Lamont’s proposal, “everything you do, you will pay more doing it.”

“This is hitting Middle America and your average person,” she said. “I believe there’s a path forward, but this is not the path,” Klarides said. “There are a lot of alternatives. There are many parts of this budget that need to be fixed. … Putting [residents] first is not taxing every corner they turn, and that’s what this budget does.”

In a departure from his predecessor, fellow Democrat Dannel P. Malloy, Lamont did not make any recommendations to cut the size of the state workforce or state agencies. Instead, Lamont’s budget is built largely around new revenue and limited growth. He called for spending increases of 1.7 percent in the first year and 3.4 percent in the second year.

While some Democrats said that a modernized and updated sales tax is needed to help fund programs, Republicans were skeptical of both taxes and tolls.

Lamont wants to reopen contract negotiations with public sector employees over cost-of-living adjustments for retirees’ pensions, a concession that the state teachers have already agreed to once. It’s known as risk-sharing, with the state reducing COLAs when the pension fund under-performs targets and increasing them when it over-performs.

“Some of you think Connecticut needs a ‘Wisconsin Moment’ – where we walk away from collective bargaining and tear up the contracts,” Lamont said. “I want an anti-Wisconsin moment – a Connecticut Moment – where we show that collective bargaining works not just for retirees but also for the next generation of state employees, and the next generation of taxpayers.”

In a blow to state hospitals, Lamont’s budget preserves a controversial hospital user fee scheduled to be scaled back and instead will generate close to $1 billion in revenue. Under a complicated arrangement that provides them supplemental Medicaid payments, the hospitals would end up paying the state about $450 million – far more than they anticipated.

”We are strongly opposed to the proposed budget. The current Administration is not honoring the bipartisan agreement for this year or next year, and the budget makes additional cuts to hospitals,” said Jennifer Jackson, CEO of the Connecticut Hospital Association.

Lamont is recommending the repeal of the business entity and gift taxes, a move applauded by conservative groups such as the Yankee Institute, which said the tax cuts didn’t go far enough.

“Imposing new taxes on sodas and grocery bags – and burdening employees with a new payroll tax to fund paid family and medical leave – will cause disproportionate harm to working- and middle-class families across Connecticut,” the group said. “We all want to see wage growth, but imposing a $15 minimum wage by fiat only result in jobs lost to automation; reduced job growth; and increased business costs in our state, which already trails the rest of the nation in economic growth.”

On the opposite end of the spectrum, the union-backed Connecticut Working Families Party praised Lamont for supporting paid family and medical leave and a $15 minimum wage – but said that the new governor must “look at additional ways” to tax the state’s wealthiest residents. The group also opposes eliminating the gift tax.

Deputy House Speaker Robert Godfrey of Danbury, a member of the House progressive caucus, said it would be much easier to raise the personal income tax on the state’s wealthiest residents than trying to approve a hodgepodge of new sales taxes on car washes, yoga, and other items.

“I ran on a pledge to raise the income tax on the super-rich,” said Godfrey, adding that about half of 92 House Democrats are members of the progressive caucus.

Besides taxes, Lamont’s budget plan contains two options for installing highway tolls – one just for heavy out-of-state trucks and a second for all motorists.

In a reversal of his campaign talking points, Lamont announced Saturday that trucks-only tolls would not generate enough revenue for the state to modernize its crumbling transportation infrastructure and probably won’t stand up to legal challenges. The pivot inflamed toll foes across the state, which eliminated tolls a generation ago.

“Let me say this to everyone: People in this state are feeling squeezed, I know that,” Lamont said Wednesday. “They’re struggling, I’ve seen it. And I know this feels like another unnecessary cost they need to worry about. That’s why this has been so hard to come to terms with.”

Melissa McCaw, Lamont’s budget director, said tolls on all vehicles would generate far more than just trucks, raising as much as $800 million annually, with full implementation by 2025.

McCaw saying there would be 53 high-speed gantries across highways statewide, not the 82 that were mentioned in a transportation study. The gantries would be located on Interstates 84, 91, 95 and Route 15. Connecticut drivers with an E-ZPass would get a discount of at least 30 percent.

Joe Brennan, president & chief executive officer of the 10,000-member Connecticut Business & Industry Association, said that businesses will not see the elimination of the corporate profits surcharge that has been promised for many years.

“There’s a lot more money obviously in the surcharge, so there’s a lot more increase than decrease, even on the business entity tax,” Brennan said. “They are raising the filing fees significantly so it wipes out a lot of the savings” on the entity tax.

The governor is seeking to add a 1.5-cent tax for each fluid ounce of sodas, sports drinks and other sugary drinks to raise revenue and to combat the obesity epidemic. Lamont also proposed raising the age to buy tobacco and vaping products from 18 to 21 and to put a 75 percent tax on vaping products. He also wants to add a 25-cent bottle deposit for wine and liquor and a nickel deposit on small liquor bottles, known as nips.

While a number of Connecticut municipalities have already adopted bans on plastic bags, Lamont wants to tack on a 10-cent surcharge per bag statewide.

Lamont’s budget proposal earmarks $5.2 million toward establishing paid family and medical leave and also takes the first step in raising the minimum wage over the next few years to $15 an hour, McCaw said. The minimum wage is currently $10.10 an hour.

Conspicuously absent from Lamont’s budget plan is a statewide car tax to replace local car taxes, which are set by the mill rate in each of the state’s 169 municipalities. The top Democrat in the state Senate, Martin Looney, has introduced legislation to set a uniform car tax, arguing that the current tax rates vary widely and are unfair, especially to city residents.

Top Democratic legislative leaders were enthusiastic about Lamont’s first budget address, coming out in strong support of the proposal for highway tolls and defending the need to look at expansion of Connecticut’s sales tax.

“He is as advertised,” said House Speaker Joe Aresimowicz, a Berlin Democrat who rejected the idea that Lamont could be accused of a “flip flop” from his original campaign proposal to only place tolls on trucks. “If there’s a flip flop, I’ll take some of the credit.”

Aresimowicz said he’s been urging Lamont to expand tolling to all types of traffic in order to bring in enough money to fix Connecticut’s troubled and congested transportation system. He added that he wants to see a toll system that provides steep discounts for Connecticut motorists.

The Democratic leaders also appeared supportive of the governor’s plan to expand the state sales tax to a wide range of Internet purchases and services like haircuts.

House Speaker Matthew Ritter, a Hartford Democrat, said he thought Lamont’s challenge for critics of his sales tax plans to come up with alternatives was a smart move by the new governor. “He really gave a challenge to people,” Ritter said.

Courant staff writers Gregory B. Hladky and Kenneth Gosselin contributed to this report.