(Adds budget details, comment from Hartford officials)
By Hilary Russ
NEW YORK, Oct 26 (Reuters) - Connecticut lawmakers on Thursday passed a two-year $41.3 billion budget, nearly four months after it was due, that is expected to help its capital city Hartford avoid bankruptcy through state aid provisions.
The budget, for fiscal years 2018 and 2019, closes a $3.5 billion deficit over the two years, in part with tax and fee hikes on tobacco products and ride shares. Low-income working families would effectively see a tax increase.
It also raids a host of separate state accounts - for everything from school bus seats to clean energy and tobacco cessation - for money that will be swept into the general fund.
The state Senate passed the nearly 900-page legislation early on Thursday morning, with the House following suit later in the day.
What remains unclear is whether Governor Dannel Malloy, a Democrat who has said he will not seek a third term in office, would sign it. He vetoed a previous budget a month ago.
Connecticut is the only U.S. state still without a full budget for fiscal 2018. Pennsylvania passed a spending plan, but no revenue package.
In a statement, Malloy spokeswoman Kelly Donnelly said the governor's office will analyze the bill but had "uncovered egregious problems" with a tax increase on hospitals that could knock the budget more than $1 billion dollars out of balance.
Raising hospital taxes would allow the state to get more federal Medicaid reimbursement, with the tax revenues to be returned to the hospitals.
"If there's a problem, we'll fix it," House Minority Leader Themis Klarides, a Republican, said about the hospital tax in a televised press conference after the vote.
The budget contains financial relief for Hartford, which has said it could file for bankruptcy without extra help to close its own $50 million shortfall and restructure its liabilities.
Some of that funding would come with strings attached in the form of a fiscal oversight board. Also included is debt service support, worth up to another $20 million annually for the life of new bonds.
In a joint statement, Hartford Mayor Luke Bronin, Treasurer Adam Cloud, and City Council President Thomas Clarke II thanked legislative leaders for their "responsible, collaborative approach, recognizing the need for a new partnership between the State and the Capital City."
Connecticut's towns, schools and nonprofit service providers have grappled for months with growing uncertainty as they wait for state funding that helps them operate.
When the fiscal year began July 1 without a budget, Malloy took control of spending through an executive order and enacted steep cuts.
To raise revenues, the budget passed Thursday imposes a 25-cent fee on every trip with ride-hailing services including Uber and Lyft and hikes taxes on cigarettes by 45 cents per pack to $4.35.
It reduces the earned income tax credit used by low- and moderate-income working people to 23 percent from 30 percent, meaning their taxes will effectively be higher.
For both years combined, the budget also sweeps into the general fund $127 million from the state's energy conservation fund, $28 million from the clean energy fund, $20 million from the Regional Greenhouse Gas Initiative - a multi-state carbon dioxide cap and trade program, and $28 million from its Green Bank.
It also pulls in $12 million from tobacco settlement money used to pay for programs that help people quit smoking and $4 million from a school bus seat belt account.
Lawmakers also included a borrowing cap, which limits the state to issuing no more than $1.9 billion of bonds every year.
Representative Catherine Abercrombie, a Democrat, said on the floor of the House that she would vote yes, but "with a heavy heart" because of cuts to senior services and other programs.
"It's good, bad and it's ugly," but it outweighs the ramifications of the governor's executive order, she said. (Reporting by Hilary Russ; Editing by Andrew Hay, Daniel Bases and Rosalba O'Brien)