Connecticut Legislature Approves Transportation Debt and Tax Legislation

The Finance, Revenue and Bonding Committee of Connecticut’s legislature recently approved a series of bills aimed at reducing transportation construction debt and gradually phasing out property taxes on motor vehicles, although the latter proposal faces significant resistance.

Despite bipartisan support for the transportation debt bill, concerns have been raised by Gov. Ned Lamont’s administration and the Connecticut Conference of Municipalities regarding the future of the motor vehicle tax phase-out. The finance committee is also set to review revenue proposals, including a new state income tax credit for low- and middle-income families with children, as part of broader budget negotiations for the upcoming fiscal years.

Transportation Fund Reforms

A key bill passed with bipartisan backing seeks to cap the Special Transportation Fund reserves at 18%. This measure, inspired by state Treasurer Erick Russell, signals a shift in strategy due to recent surplus trends. Surpluses in the transportation fund, sourced mainly from sales and fuel taxes, have led to calls for tax relief from gasoline station owners and fuel distributors. Last spring, $534 million from these reserves was allocated to reduce transportation borrowing, projected to save $680 million in interest over a decade.

Contentious Tax Phase-Out Proposal

The finance committee’s decision to phase out motor vehicle property taxes, a $1 billion revenue source for municipalities, has sparked debate. The plan, which hinges on sustained budget surpluses, proposes redirecting savings from pension contributions to offset municipal revenue losses starting in 2028. However, it faces scrutiny over its dependency on surplus management outside the regular budget process.

Majority Democrats advocate using these surpluses to boost investments in essential services, while Sen. Ryan Fazio criticizes the tax as burdensome. The Connecticut Conference of Municipalities argues for a holistic approach to local revenue reform, expressing skepticism over state commitments to fund transfers.

Additional Legislative Measures

Beyond these major propositions, the finance committee ratified several other bills:

• A 25% tax credit (capped at $500) for businesses contributing to employees’ Connecticut Higher Education Trust accounts.
• Business and income tax credits for farming businesses investing in machinery and buildings, alongside expanded municipal property tax exemptions.
• Expanded state tax credits for employers making student loan payments on behalf of employees.
• Authorization of $30 million in municipal borrowing for school infrastructure improvements over the next two years.
• A $500 state income tax credit for licensed family childcare home owners, effective 2026.
• Enhanced property tax abatement for families of first responders killed in duty, including a $2,000 state income tax deduction for related service providers.
• A new subscriber fee to support a cancer relief fund for firefighters, projected to generate $2.4 million to $3 million annually.

This legislative activity underlines Connecticut’s efforts to balance fiscal responsibility with community support, an evolving dialogue with significant implications. Stay updated with the latest on Connecticut’s financial policies at fintechfilter.com.