Strengthening the economy, repaying $400 million in federal loans
Connecticut Republicans and Democrats have reached an agreement on revising the state’s biennial budget for fiscal years 2022 and 2023.
Fortunately, Democrats conceded several major elements of the GOP’s recently proposed $1.2 billion tax cut plan.
Yet there remains a major piece of the GOP plan that remains unresolved: a proposal to use off-budget U.S. bailout (ARP) money to pay off hundreds of millions of still-outstanding federal loans received by Connecticut over the past two years to fund unemployment insurance benefits.
Why is a loan repayment proposal part of a tax reduction plan? Because otherwise, these loans have to be repaid with heavy tax increases on state employers.
Also, why did the GOP combine on-budget tax proposals with this off-budget ARP program proposal? Because to date, hundreds of millions of ARP money has been earmarked to fill previously expected budget shortfalls.
As recently as February, Governor Lamont still planned to spend $940 million in ARP funds to fill budget shortfalls, including $215 million to fill a shortfall for the soon-to-end fiscal year 2022 — despite the fact that Lamont’s own February budget proposal called for $1.5 billion. budget surplus for 2022.
After the release of Lamont’s budget proposal with its large projected surplus, Republicans got to work on their tax cut plan. The plan emerged, including about $1.0 billion in budget tax cuts and a $225 million repayment of federal loans, with the obvious idea that the $215 million in money from the ARPs still earmarked for deficit reduction in this fiscal year would not be needed for this. goal.
The GOP plan was crafted before the Office of Policy and Management announced a whopping $500 million increase over Lamont’s projected budget surplus for fiscal year 2022 last week. OPM now forecasts a surplus of $2.0 billion.
It was surely that increase that pushed Democrats to the GOP-recommended increase in budgeted tax cuts, which would now total $600 million, with all one-time cuts set to end at the end of the fiscal year. 2023.
Just as surely, the huge surplus propels ongoing talks about repaying an even larger amount of federal loans — reportedly $400 million, which would close out the entire outstanding amount.
Apparently, negotiators have realized that the state won’t need all of the $725 million in ARP money still earmarked to fill a potential fiscal year 2023 budget shortfall.
The case for reimbursement could not be simpler and more compelling. Indeed, Lamont himself adopted it. He has already earmarked a very modest amount of ARP money, which would leave $400 million or more still outstanding.
The discussion around loan repayment is part of a larger question about what to do with the ARP money freed up by reducing the amount earmarked for any budget shortfalls. To be sure, Democrats are pushing for more social safety nets and social welfare spending, instead of loan repayments.
Even if well-intentioned, more social spending is quite risky, as it will be difficult to stop such spending once the one-time injection of ARP money runs out.
What is the likelihood that, if re-elected, Lamont and a Democratic-controlled legislature will end the ARP-funded spending increases they have already initiated: $180 million for K-12 education? grade 12, $166 million for higher education, $230 million for public and mental health, $190 million for workforce development, etc.?
The state runs a real risk that these expenditures will continue after the ARP funds are exhausted. This would jeopardize the financial health of the state. The risk would be even greater if the newly freed ARP funds – up to $940 million – were also spent on these or similar programs.
When was the social safety net or social protection spending of any kind cut just a year or two after it was launched?
The even more important point is that all government services are ultimately dependent on taxes generated by state enterprises and its economy in general. Unless federal loans are repaid by the state, Connecticut’s economy will be weighed down by even more corporate taxes. The state’s 9.0% corporate income tax is already one of the highest of the 50 states.
Connecticut’s labor force is still 2% below its pre-pandemic level, while 22 states have increased theirs since then. The state’s 4.6% unemployment rate is tied for 6and– the highest in the country.
The Lamont administration and Republicans and Democrats in the General Assembly should do everything to support the state’s economy. Currently, that means agreeing to repay federal loans in full.