[Hartford Courant – Capitol Watch] State Senator L. Scott Frantz Speaks Out on Tax Package Before Legislative Finance Committee

April 21, 2011

By Christopher Keating

Hartford Courant – Capitol Watch
Story as it appeared in Capitol Watch on April 21, 2011

Despite widespread complaints by Republicans, the Democratic-dominated finance committee Thursday approved Gov. Dannel P. Malloy’s fiscal package that would increase the state’s income, inheritance, corporation, gasoline, alcohol, cigar, and cigarette taxes.

Minutes later, the budget-writing appropriations committee approved Malloy’s spending package.

The 32 to 20 vote on the tax package came mainly along party lines, but Senator Edward Meyer of Guilford and Rep. Charlie Stallworth of Bridgeport – both Democrats – voted against the package.

Republicans complained bitterly about the Democratic-written proposal, but their amendments were rejected on party-line votes.

The Republicans offered an amendment that included their entire no-tax-increase budget that they had unveiled earlier this week. They said it would provide a sharp contrast to Gov. Dannel P. Malloy’s overall $1.9 billion tax increase that covers a wide variety of items from taxes on individuals to hospitals.

Republicans mocked several of Malloy’s recent statements, including that “Connecticut is open for business” and that there should be a “shared sacrifice” to solve the state’s projected $3.5 billion deficit. They said that the increases in corporate taxes by an additional $81 million over two years contradicts the idea that the state is open for business, and they said the middle-class would still be hit hard as part of the shared sacrifice.

Republicans complained that the increase in the state’s inheritance tax is retroactive to January 1, meaning that it would affect people who have already died. In addition, the state’s “luxury tax” of 7 percent on high-cost items is lower than Malloy originally proposed, but lawmakers said that an unintended consequence is that the tax would be imposed on a wedding gown of $1,000 or more. The luxury tax focus had mainly centered on high-end cars above $50,000, yachts above $100,000, and jewelry items above $1,000.

Rep. Sean Williams, the ranking House Republican on the tax-writing finance committee, said there is a better way, adding that the Democratic budget would kill jobs during a sluggish economy that is still struggling to recover.

Although he did not vote for Malloy in the November election, Williams told his colleagues during the committee meeting Thursday that he was excited by the change that was promised in January when Malloy took office. But he said that Republicans were written off and ignored during the budget process over the past two months.

“We took him at his word and believed this would truly be a bipartisan effort,” Williams said, adding that talks with the governor’s office were simply perfunctory exercises. At the same time, he said, legislators “would see OPM staff come in with lots of file folders under their arms” as they headed to important meetings with the Democratic co-chairs of the budget and tax committees.

“This is a Democrat-only budget, a Democrat-only tax package,” Williams said. “And that’s a shame. … There has been no real reaching out. … The governor said publicly and privately that he didn’t expect one Republican vote for the budget.”

“Where is the sacrifice, folks? You know who is sacrificing? The middle class and the small business community,” Williams said. “We haven’t created one net new job since 1989. … Everywhere I go, people ask me, ‘What are you doing up there?’ ”

“We need to go back to the drawing board. We need to work together,” Williams said. “The guy who makes $60,000 a year and has a mortgage and a kid in college. Does this help him? … The bottom line is we have to create jobs and create opportunities in the state, and this doesn’t do it.”

But the committee’s co-chairwoman, Sen. Eileen Daily of Westbrook, defended the Democratic package and criticized the Republican budget alternative that includes a proposal to eliminate the Chester-to-Hadlyme and Rocky Hill-to-Glastonbury seasonal ferries across the Connecticut River.

“Since the Republican budget came out, my phone has been ringing off the hook because of the proposed cancellation of the ferries,” said Daily, a Democrat.

She noted that Malloy, after using the word “celebration” on Wednesday, had said that it was the wrong word to describe the agreement, which is Senate Bill 1007.

“I think we’ve put together a good package, a balanced package,” Daily told her colleagues. “It is the shared sacrifice that the governor has been talking about.”

Rep. Patricia Widlitz, the committee’s co-chairwoman with Daily, also defended Malloy’s budget by saying it is a carefully negotiated, balanced proposal that would put the state back on the correct fiscal track.

“It certainly is a tough budget. It does raise taxes,” Widlitz said. She referred to the Republicans’ no-tax-increase budget as “a last-minute attempt to throw some numbers on the table.”

The remarks by Daily and Widlitz were echoed by two Democratic senators, John Fonfara of Hartford and Gary LeBeau of East Hartford, who both supported the budget.

When asked by Republican Rep. Richard A. Smith of New Fairfield to justify why the tax on gasoline will be going up by 3 cents per gallon, Daily responded, “We’re in as bad a shape as we ever have been. We borrowed beyond any borrowing that we should have done. … On three cents on gas, I’m sorry that anybody has to pay it. I’m sorry I have to pay it. … Our money is going to good use. … With this administration, we can be sure that our money is well-spent. … I know it’s difficult, and I know that some people will feel some pain.”

Smith, a freshman lawmaker, said he did not understand the earned income tax credit that will be created for the first time in state history. Only citizens who receive the federal income tax credit can qualify, and the state credit would be 30 percent of the federal credit. Many of those receiving the credit earn about $20,000 per year, and a reduced credit – on a sliding scale – is available for those earning more than $40,000 per year.

“They are working people. They have to submit federal tax forms,” Daily responded. “They will receive a check.”

Overall, the earned income tax credit would cost the state about $110 million per year. Nationwide, about 24 states have a state earned income tax that is in addition to the federal credit.

“The governor said in his inaugural address, and I was there, that the state is open for business,” Smith said. “I was applauding then.”

Smith said he is no longer applauding because the state’s corporation tax surcharge would increase under the tax package from 10 percent to 20 percent for the 2012 and 2013 tax years.

“We can’t say the state is open for business and then increase the corporate tax surcharge by 100 percent,” said Sen. L. Scott Frantz, a Greenwich Republican who said that the governors of New York and New Jersey had done a better job in handling their budget crises than Malloy.

“If we’re speaking about being open for business, let’s be open for small business,” added Rep. John Shaban, a Redding attorney in his first year as a legislator.

Both the finance and appropriations committees held key meetings on the budget package Thursday as legislators rushed to finish their work before the Good Friday and Easter holidays.

The budget still must be approved by the full House of Representatives and the Senate before it goes to Malloy for his signature.

Frantz, one of the most knowledgeable Republicans on complicated tax issues, said that the tax increases are too high.

“We don’t like taking the medicine,” Frantz said. “It’s too much for the people of Connecticut. … People in southwestern Connecticut, they’re leaving. I’m sure they don’t read The Hartford Courant every day, but they do tune in. … For the typical small business person in this state, they can’t pay any more taxes right now. The poor person who is running a recruiting firm, a lawn services firm, they are looking at tax increases that are unsustainable. We shouldn’t be raising taxes as we come out of the worst recession that we all will ever see. … Let’s become the Switzerland of the Northeast, if not the entire country.”

While taxes will increase on hospitals, that tax is in a separate bill. The package also includes eliminating a tax exemption on the labor charges on the repair of small aircraft that would generate $100,000 per year. As such, the sales tax would now be charged on airplane repairs starting on July 1.

“The airplanes will no longer come to Connecticut,” predicted Frantz, a longtime pilot who said that hundreds of people work in the aircraft industry in the state.

“That argument wasn’t cogently made during all our arguments,” Daily responded. “We’re willing to look at that going forward, but we don’t want to change our package today.”

Frantz offered an amendment to change the airplane repair sales tax, but it failed by 31 to 18 in the Democratic-dominated committee Thursday afternoon.

Over the past 30 years, the average increase in the state budget has been 7 percent and is unsustainable, he said. Frantz said the state needs to avoid a “downward death spiral” that drives businesses out of the state. He noted that the hedge-fund and private-equity businesses moved into lower Fairfield County over the past 12 years and have contributed huge amounts of state tax revenues.

State Rep. Christopher C. Davis of East Windsor said that the company where he works is experiencing difficult times and he was asked to avoid coming to work for three or four weeks.

“I’m not the only one facing this,” Davis said, adding that many small businesses are having difficulties.

“I feel particularly bad that this is happening to you,” Daily responded.

Davis sought to restore the $500 maximum property tax credit, but the amendment failed by a vote of 31 to 18.

The tax battle was fought mostly on party lines with Democrats in favor and Republicans against. But one of the newest Democratic legislators, Rep. Charlie L. Stallworth of Bridgeport, said he was voting against the tax package after being told during his recent special election campaign by constituents that they could not afford a tax increase. In keeping with that spirit, he was voting “no” on Thursday.

State Rep. Vincent Candelora, a deputy House minority leader, said that the $1.9 billion increase in taxes will not lead to economic recovery in Connecticut.

“The winners certainly are government, big business, and the special interests, and the losers are the people of Connecticut,” Candelora said. “I just hope that we think long and hard … and that we have continued dialogue and continued discussions about what ramifications this tax package will have on the people of Connecticut. The voices that have been drowned out and are being ignored are the people of Connecticut.”

Sen. Toni Boucher, a Wilton Republican who represents many wealthy constituents in towns like Weston, Westport, and New Canaan, said that Connecticut residents are already paying high taxes before the income, inheritance, gasoline, alcohol, and cigarette taxes go up.

Some of the surrounding states are decreasing their state income taxes, and she noted that New York State will be dropping its rate to 6.85 percent in January 2012.

“Rhode Island just reduced their highest category to 5.9 percent, hoping to attract Connecticut residents,” she said. “We are very disappointed that some of the proposals that were recently put out there by the Republicans … have not been included in this.”

She added, “We can’t tax ourselves to prosperity.”

State Rep. John Piscopo, one of the longest-serving House Republicans, said he had considered making a plea to Democrats on the committee that they did not have to vote for $1.9 billion in tax increases.

“You don’t have to do this today. You don’t have to vote for this,” said Piscopo, a lawmaker since January 1989. “I’m telling you. There’s a way out of this.”

Piscopo noted that the last three letters of the tax bill are 007, which was made famous in the movies.

“I think we can be James Bond today and vote no on the budget,” Piscopo said.

Sen. Andrew Roraback, a Litchfield County Republican who serves as the ranking member of the tax committee, said the state should eliminate the public financing of political campaigns. He said he had just learned that the taxpayers provide the funding for coffee that is purchased for campaign staffers.

“I didn’t know that,” Roraback said. “It’s a good thing for Dunkin’ Donuts, but it’s not such a good thing for the taxpayers of the state of Connecticut.”

Roraback also questioned Malloy’s use of the term “celebration,” although Malloy said he should not have used the term in the context of the tax package. Instead, Roraback referred to Thursday as “a day of mourning, at least as much for the process that got us here as for the contents of the bills before us.”

“It’s a day of mourning because what’s been revealed in this process – that with one-party rule, the party in power gets its way,” Roraback told Democrats. “You have the votes, you have all the offices, but you don’t have all the ideas.” He said “there’s been a lost opportunity … for members of the other party to contribute to the resolution of the massive crisis before us.”

“What is there to celebrate about raising income taxes on the beleaguered people of the state of Connecticut by $1.5 billion over the next two years?” Roraback said. “What is there to celebrate about taxing gasoline an additional 3 cents a gallon, when I paid four dollars and 10 cents for my regular this morning? What is there to celebrate by increasing electric rates on the state which already has the second highest electric rates in the nation?”

But state Sen. Andrea Stillman, a Waterford Democrat, defended the proposal, saying that it would be an overall boost to the economy.

“This is a balancing act,” Stillman said, adding that the new earned income tax credit would support local businesses because the working poor would now have more money to spend at small companies.

State Rep. Kathleen Tallarita, a Democrat from the border town of Enfield, said that raising the alcohol and cigarette taxes are not good for a border town.

“I tell my constituents – just keep going north to Massachusetts,” Tallarita said. “I pray, this being Holy Thursday, that this is a work in progress. I hope we can continue to work on this so that it can be a better budget and tax package.”

State Sen. John Fonfara, the co-chairman of the energy committee who also serves on the finance committee, said he hopes the legislature can change the tax bill so that ratepayers do not bear the burden of the new electric generation tax. The finance committee’s version is higher than Malloy’s original version, but lower than the so-called Millstone tax that would have cost Millstone about $330 million per year for the two nuclear plants in Waterford. Fonfara, though, says that ratepayers shouldn’t pay the tax increase.

“I don’t believe the governor intended that, but that will be the consequence,” Fonfara said.

Overall, Fonfara said the Democratic tax package is a reasonable plan.

“What’s here is necessary, and it’s responsible,” Fonfara said.

Sen. Gary LeBeau, a member of the Senate Democratic coalition who is expected to vote for Malloy’s budget, agreed with Fonfara’s words.

“It is a necessary and responsible budget, and it is sustainable,” LeBeau said. “None of us feel good about voting for tax increases. It’s necessary and it’s responsible, and it’s the right thing.”

The National Federation of Independent Business, which represents small businesses, criticized the tax package.

“It’s another taxpayer bailout, this time for big government,” said NFIB State Director Andrew Markowski. “Proof that it’s a sham is that it specifies numerous tax increases, but it proposes absolutely no specific cuts for the government unions.”

Taxpayers, Markowski said, should know the exact details of union concessions as part of the shared sacrifice.

“From what we can tell, taxpayers are going to sacrifice their money, and the government unions are going to share it,” said Markowski.

He added, “The income tax hike is going to hit small business owners hardest because they file as individuals. That’s going to cut into their revenue and make it harder to hire more workers, expand their businesses, and compete against businesses in other states. …
No one budgeted for a retroactive tax hike. It’s an unanticipated expense that’s going to force a lot of small business owners to make an emergency adjustment to their budgets.”

Markowski said that shoppers will cross the border in order to find a better deal and flee the taxes in Connecticut.

“Unless he plans to build a moat around Connecticut, people are going to find ways around these taxes and small business retailers are going to be hurt,” said Markowski.

In a separate vote, the appropriations committee approved the spending side of the budget. The Hartford Courant’s Jon Lender reports:

Majority Democrats on the appropriations committee voted down several Republican amendments to the budget bill that Malloy and Democratic leaders had unveiled on Wednesday.

The first rejected amendment would have adopted the no-tax-increase budget that Republican lawmakers had presented Tuesday; it would have cut the state workforce by 5 percent while rejecting all of Malloy’s proposed tax hikes and kept intact the popular $500 property tax-credit on state income taxes.

Another GOP amendment challenged a clause in the Democratic budget bill that would have given the governor’s budget chief, Ben Barnes, broad discretion in implementing any budget reductions achieved in ongoing negotiations under which the Malloy administration is trying to win $1 billion in savings and concessions from state employee unions. Republicans including House Minority Leader Lawrence Cafero of Norwalk said that, as worded, the language would rob legislators of authority they should retain in the budgeting process.

“We are giving the authority to one person … to cut any line item …. in any branch of government,” Cafero said. “It is unprecedented. Unprecedented.”

Democratic committee leaders agreed that the wording was too vague, but urged rejection of the amendment, anyway, to move the bill forward toward ultimate legislative approval – with the understanding, they said, that no one intends that the governor’s budget chief should be granted additional authority at the expense of the legislature. The language will be fixed as the bill moves along, to reflect that understanding, they said.

Still another Republican amendment would have adjusted the Democratic budget to eliminate the longtime practice of twice-a-year “longevity payments” to non-union state employees, as a prelude to eliminating such payments to unionized state workers through negotiations. Democrats said they didn’t want to derail the budget agreement they had reached with Malloy through “line-by-line” changes, which is how they characterized this proposal.

Republicans, however, said that Malloy had expressed his long-standing dissatisfaction with the practice of paying state workers for the length of time they have served, rather than productivity – and they called on him to support their initiative.

“State employees earned a total of $20,252,779 in longevity payments on April 22 simply for staying on the job for 10 years or more,” Republican legislative leaders said in a statement. Of that total, more than $7 million went to 3,600 non-unionized workers whose legislative payments could be ended without negotiations, the Republicans said.

Malloy senior adviser Roy Occhiogrosso said that the Republicans’ longevity payment amendment came in at the last moment, adding that “longevity reform will not occur as a result of a phantom amendment and a later-than-the-last-minute political maneuver. The governor is committed to reforming longevity and will achieve that goal in a respectful and professional process.”

Democrats quickly voted down a Republican amendment to cut the salaries of legislators by 10 percent. After that, the finance committee approved the overall budget and then lawmakers finished their work by about 5 p.m. Thursday.

The appropriations committee voted 33 to 21 with 2 members absent. Three Democrats – Sen. Joan Hartley of Waterbury, Rep. Linda Schofield of Simsbury, and Rep. Kim Fawcett of Fairfield – voted against the spending plan.

The Hartford Courant’s Rinker Buck has details on the hospital provider tax at http://www.courant.com/health/connecticut/hc-buck-hospital-tax-0421-20110421,0,1275005.story