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February 5, 2020

Lamont walks back biz tax cuts, sets stage for recreational marijuana

HBJ Photo | Matt Pilon Melissa McCaw, secretary of the Office of Policy and Management (OPM), unveiling Gov. Ned Lamont's revised budget for fiscal year 2021.
By Matt Pilon and Greg Bordonaro

Gov. Ned Lamont on Wednesday pitched a revised budget for fiscal year 2021 that includes no broad-based tax rate increases, but cancels or slows previously pledged tax cuts that affect Connecticut businesses.

Lamont’s $22.29 billion, one-year budget plan and policy agenda also seeks to further streamline occupational licensing, legalize recreational marijuana and online lottery sales, offer a new incentive program to businesses and a new way to promote the captive insurance industry.

His proposal nixes a scheduled elimination of the corporate income tax surcharge, which would now remain at 10% indefinitely.

That would raise $22.5 million in additional revenue next year for the state, which has imposed a surcharge for 15 of the past 18 years.

In addition, Lamont wants to slow the phase-out of the state’s capital base tax, which is levied on a company’s net worth or capital holdings, rather than on income.

Lamont wants to zero out the tax in 2026, two years later than originally planned. That would allow the state to reap an extra $5.7 million in 2021 revenue.

The capital base tax phase-out was seen as a win for the bioscience industry, which has argued it is particularly impacted by the tax since companies run for long stretches with no income.

[Read more: Lamont keeps state spending lean to build reserves against next recession]

Joe Brennan, CEO of the Connecticut Business & Industry Association, said the more policymakers walk back tax-break promises the less certainty there is for businesses.

“If they are going to continue to extend the surcharge it’s something we are disappointed in given that we are still trying to get back to equilibrium on job growth,” Brennan said Wednesday morning, noting that he hasn’t seen the full budget proposal yet and wasn’t prepared to provide a comprehensive assessment.

Lamont would also invest more money into workforce development, including by beefing up the Office of Workforce Competitiveness with nearly $700,000 for an executive director and other staffing. OWC would move from the Department of Labor to the Office of Policy and Management, as previously reported by HBJ.

On Wednesday morning, OPM Secretary Melissa McCaw called the budget proposal “financially responsible” and “pro-growth.”

“I want the narrative today to be that Connecticut is in a strong position with respect to a record Rainy Day fund,” McCaw told reporters at the Legislative Office Building.

The fund is at about $2.5 billion now, and projected to grow to $2.8 billion in the coming fiscal year. McCaw said Lamont feels it is “crucially important” that lawmakers not tap the reserves, so that the state is in a better position for a potential economic downturn.

When the last recession hit 12 years ago, Connecticut’s Rainy Day fund stood at $1.4 billion, McCaw noted.

New business incentive

Lamont’s budget also details a new incentive program – called Jobs CT — that will reward companies in specific industries (finance services, aerospace/defense, IT, life sciences, manufacturing and digital media, among others) that create at least 25 jobs paying 85% or more of the median household income in the municipality where the jobs will be located.

The company would be reimbursed an amount equal to 25% of the state income tax paid by the new employees. The benefit would increase to 50% of the state income tax paid if a company is located within an Opportunity Zone.

The payments would start at the beginning of year three and run through year seven.

Lamont’s budget caps the program’s annual spending at $40 million, a further sign that his administration is tightening the purse strings on incentives to private-sector companies.

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