Legislative Update on Connecticut Transportation and Tax Bills

The legislature’s Finance, Revenue and Bonding Committee made significant strides on Tuesday, approving bills aimed at reducing Connecticut’s transportation construction debt and gradually phasing out property taxes on motor vehicles by the 2030s. Despite these efforts, the property tax phase-out faces challenges, including opposition from Gov. Ned Lamont’s administration and the Connecticut Conference of Municipalities.

The Democratic-controlled finance panel, racing against a Thursday deadline, is expected to address multiple revenue proposals, including a new measure to create a state income tax credit for low- and middle-income families with children. These revenue bills, alongside a spending plan approved by the Appropriations Committee, will serve as a framework for final budget negotiations with legislative leaders and Lamont for the upcoming two fiscal years.

Capping Transportation Reserves and Debt Reduction

One bipartisan-supported bill enacted on Tuesday places an 18% cap on reserves in the budget’s Special Transportation Fund (STF). Surplus funds will be directed towards reducing transportation debt. This proposal, championed by State Treasurer Erick Russell, responds to recent surpluses in the transportation fund, making up about 9% of Connecticut’s $26 billion state budget. In previous fiscal years, the STF has enjoyed surpluses exceeding 10%, prompting calls from gasoline station owners and fuel distributors for tax cuts or relief.

Last spring, legislators agreed to allocate $534 million of the STF reserve to preemptively pay down transportation borrowing, a move anticipated to save Connecticut $680 million in interest costs over the next decade.

Tax Phase-Out Faces Strong Objections

Another key component of Tuesday’s legislative session was the decision to maintain the 18% cap on the STF permanently and use excess reserves to pay down construction debt. However, this move sparked Republican objections, especially around the phased elimination of property taxes on motor vehicles—a revenue stream worth nearly $1 billion annually for cities and towns.

Senator John Fonfara, co-chairman of the finance committee, insisted there would be “no revenue loss to the towns.” This assurance relies on Connecticut continuing its track record of significant budget surpluses since the establishment of new fiscal caps in 2017. These surpluses have supported a rainy day fund and financed over $8.5 billion in supplemental pension payments.

Starting in 2028, any savings from pension contributions are set to support eliminating the property tax. For instance, if $100 million is saved in pension costs, and towns still collect $1 billion in property taxes, the state would reduce this to $900 million, compensating cities with $100 million to balance the loss.

Nevertheless, the savings strategy faces criticism from Democrats who argue it hampers investment in critical areas like education and healthcare. Republican Senator Ryan Fazio labeled the motor vehicle levy a “burdensome tax,” expressing concerns over the plan’s reliance on external funding beyond standard budget processes.

Additional Legislative Measures

• Establish a 25% tax credit, up to $500, for businesses contributing to employees’ Connecticut Higher Education Trust accounts.
• Introduce business and income tax credits for farming investments, increasing property tax exemptions for farm machinery.
• Expand eligibility for state tax credits for student loan payments made by employers to their employees, starting in 2026.
• Authorize $30 million in annual borrowing for municipal school infrastructure improvements.
• Implement a $500 state income tax credit for family child care home owners starting in 2026.
• Expand property tax abatements for emergency responders and introduce a $2,000 tax deduction for certain volunteer services.
• Impose a five-cents-per-month fee by telecommunications companies to support a cancer relief fund for firefighters.

For more detailed Connecticut news and developments, visit fintechfilter.com and stay updated.