Deal, or Raw Deal?

June 7, 2011

The new administration says Connecticut is different and will take the road less travelled: unlike other states, it passed new and higher taxes on nearly everything to pay for job protection and a great new deal for state workers.

The majority party in the legislature has passed a $5.2 billon dollar state budget, though almost half of the budget remains unaccounted for. The hole amounts to $2 billion.

We are told there is a $1.6 billon deal on union concessions – though members have not voted on it yet. The non-partisan Office of Fiscal Analysis says they are unable to verify that the $1.6 billion in projected savings is fully achievable, a disturbing revelation at best and begs more questions of the administration’s deal.

There is also a remaining $400 million, otherwise known as “plan c” that would be financed by using surplus tax revenues and some small reductions in spending according to the new administration.

The Governor is proposing to fill that gap by using $319.1 million of the projected surplus – supplied by a billion dollar tax increase passed by the majority party in the previous session. The remainder would be mainly paid for by reduced spending tied to the account that funds health care for retired state workers. Other cuts include:

$7.2 million each year from a cooperative venture between school districts.
$3.65 million yearly cut from the Workers’ Compensation Fund.
$2.5 million in 2011-12 in medical services for prison inmates.
$2 million in 2011-12 – University of Connecticut’s Health Center operating block grant.
$201,317 yearly from reduced use of natural gas.

The changes the new administration proposed, if passed by the legislature, would leave the state budget in the black for the next two fiscal years by nearly $690 million.

Why are we then forcing the taxpayer to pay even higher taxes?

The Governor originally said he was going to use his built-in surplus to pay down debt, replenish the rainy day fund and pay for the transition to GAAP. In reality, he is using the surplus created by previous tax increases to avoid spending cuts while at the same time levying the largest tax increase in Connecticut history.

New taxes will be levied on nearly every income, sales, corporations, small business, retailers, inheritance, real estate, clothes, shoes, over the counter drugs, manicures, yoga, car washes and more.

Connecticut also became the only state in the nation to enact a new luxury tax on clothes, jewelry and cars, as well as a tax on electric generation (which could become a precedent for water companies, phone companies etc.).

These new income tax increases will be a jolt to taxpayers since they are retroactive to January 1. Taxpayers will need to recalculate the amount of their withholding to make up for six months of income taxes no one expected.

The new inheritance tax is also retro-active to January 1, 2011.

Here is the union deal membership is considering:

A four-year no-layoff guarantee. A state employee will not lose your job for the next four years regardless of economic conditions.
They will receive no less than a 9.3 percent pay raise over the next five years.
A state employee has worked for 10 years; they will get bonus payments twice a year no matter how well you performed your job (longevity).
They will continue to be eligible for a pension after five or 10 years and have no increase in their pension contributions.
They will continue to be able to pad their pension by including overtime and other expenses into their base pay.
They will have a health care plan that is among the best in the country and pay no increase in their premiums.
They will continue to be eligible for those benefits in their retirement and they will not pay any additional money toward those benefits for the next two years.

It seems that with 9.1% unemployment and 119,000 Connecticut job losses – it is much better to be a government worker than to live in the risky world of private enterprise and free markets where you indeed have to “share the pain.”

The Governor’s concession agreement also relies on at least $563.5 million in “savings” over the next two years that is most likely unachievable. These savings include:

$180 million by implementing “savings ideas proposed by employees.”
$90 million by “utilizing new technologies.”
$75 million in health care cost savings suggested by a “Health Care Cost Containment Committee” that doesn’t exist at this time.
$205 million in savings from a value-based health care plan where participants schedule routine physicals and annual exams in order to prevent future health care costs.

As the unions decide whether to take the deal, taxpayers know that the deal they are being handed is a “raw” deal.

“Plan c” will be put before the General Assembly for approval. The union deal should also be put before the legislature for approval, as is customary. However, there is a move afoot to circumvent the normal process. The hard deadline for both is June 30th.