Despite Governor’s Pledge, Republicans Warn Of Tax Increases [CT Now]

By CHRISTOPHER KEATING, DANIELA ALTIMARI | CT Now

HARTFORD — Republican legislators said Wednesday that they fear tax increases could be coming next year because of the state’s budget problems, despite pledges by Democratic Gov. Dannel P. Malloy not to let that happen.

Malloy repeated his no-tax pledge Wednesday when questioned by reporters about projected deficits of up to $99 million in the current fiscal year and more than $1 billion in the next fiscal year, which starts July 1.

Despite the ongoing financial problems, Malloy predicted that the state will end the current fiscal year in the black.

“My prediction is we end this year with a surplus, not a deficit,” Malloy said. “We’re relatively early in the fiscal year and, again, we will not end in deficit. … We’re not intending to raise taxes.”

When asked if he would use the state’s rainy day fund to plug the budget hole, Malloy simply replied, “No. No.”

Republicans, however, said they have continuing concerns about the state’s fiscal health.
“I’m scared every day that there are going to be increases in taxes, fees, and regulations that are going to put a damper on the economy and the business community,” said Sen. L. Scott Frantz, a Greenwich Republican who is the ranking senator on the tax-writing committee. “Ultimately, the state of Connecticut will end up losing, rather than gaining, because they are alienating those who are the tax base.”

Rep. Vincent Candelora, a deputy House Republican leader, said that the state’s taxpayers can’t afford a tax increase.

“At the end of the day, that’s the direction they seem to be pointing,” Candelora said. “I fear, going into this legislative session, that it’s going to be more of the same.”

Some legislators have also questioned whether proposed tax cuts, including some set to start in July 2015, could be short-circuited or delayed.

Among the cuts that have already been approved are restoring the sales tax exemption for nonprescription drugs and clothing under $50 and repealing the 20 percent surcharge on corporate profits.

When asked whether the proposed tax cuts on certain items subject to sales tax would be continued, Malloy’s budget director, Ben Barnes, said: “I make it a point not to limit the options my boss has to balance the budget. Obviously, we will propose a budget that will … be balanced, in accordance with the constitution. I’ll let [the governor’s] words speak for themselves on his appetite for changes in taxes.

“I’m going to present many, many alternatives to the governor … in order to assist him in proposing a budget to the General Assembly. Will I give him alternatives that involve adjusting the expiration dates of taxes? Of course, I’ll give him all kinds of alternatives, many of which will be deemed unpalatable or ill-advised for one reason or another, and we’ll come up with a budget that he supports and that we can hopefully get support from the General Assembly.”

Republicans also expressed alarm Wednesday that Treasurer Denise L. Nappier recently transferred $160 million from bond accounts into the state’s common cash pool to improve cash flow.

“These transfers are consistent with the state’s long-standing and sanctioned process for managing fluctuations in the flow of cash to and from separate funds,” Nappier wrote to Frantz and top Democratic fiscal leaders. “Since November 13th to date, such transfers total $160 million, and more such transfers over the next month are likely until revenues increase in late December.”

Currently, the state has less cash on hand in mid-November than during more flush times. For example, state officials are anticipating millions of dollars in sales tax revenues to arrive by the end of the Christmas shopping season. In addition, income tax money comes in at a faster pace in February, March and April as the April 15 tax deadline approaches. The state currently has about $1.1 billion in cash available, according to Nappier.

Malloy said that the problem was not unusual, adding that the state is currently in “a bit of a trough” that is based on the calendar.

“Revenues have ups and downs,” Malloy told reporters. “As is noted in the letter, we are in the process of working out about $200 million in payments from the federal government. … In the absence of those funds, I think the treasurer just wants to make sure she’s got enough money in the bank. … She wants to make sure there are no difficulties, and so she’s taking what she deems to be appropriate steps.”

But Frantz said the legislature should have heard more details about the fiscal problems before the election rather than after.

“This is very serious stuff with respect to the economy and the voters,” Frantz said. “All of that information should be available in advance of elections. I’m not talking about a day in advance. I’m talking about several weeks in advance so that people can digest it and vote accordingly. If they get bamboozled at the last minute or, worse, they get it after the election is over, they’re not making an educated decision.”

During a meeting Wednesday of the State Bond Commission, Candelora said he was troubled by the notion of using proceeds from the sale of bonds to fund the operations of state government, even in the short term.

“It shouldn’t be lost on people that each time we go and borrow from these bond proceeds, that’s less money the state of Connecticut has to invest and earn off of,” he said. “While this time of year we tend to get into a bit of a cash crunch, this is the first time we’ve done this over the last four years this early in the cycle. Typically … the last time we fell into a cash crunch, a couple of years ago … we had different circumstances, we had a much larger deficit.”

Using the proceeds from the sale of bonds to pay for general fund expenses is a “huge red flag,” Frantz said.

Malloy, who has been critical of his Republican predecessors for relying on similar tactics, said the dynamics are different now.

“We have $520 million in the rainy day fund, which we didn’t previously have,” he said.
Malloy said during the meeting that he counted at least 12 occasions during Republican administrations when money was transferred from bond proceeds to fund operating expenses. In each case, the move failed to generate “a whole lot of comment,” he said.

The state’s long-term and short-term budget problems will be discussed at a special meeting Friday with members of both the finance and appropriations committees at the state Capitol complex.