House, Senate Approve $19 Billion Annual Budget That Delays Tax Breaks [Hartford Courant]

May 5, 2014

By Christopher Keating | Hartford Courant

HARTFORD — The state Senate early Sunday morning approved a $19 billion annual budget that postpones three tax breaks for shoppers and retired teachers as the state’s surplus evaporates in a still-sluggish Connecticut economy.

Democrats hailed the package for providing funding for public education, housing, after-school programs, social service needs and transportation infrastructure to improve roads and bridges.

But Republicans decried it as an unrealistic, gimmick-filled document that includes $75 million in additional tax-collection projections that were revealed for the first time on Saturday and had not yet been verified by the legislature’s nonpartisan fiscal office.

In a rare Saturday session that lasted until 10 p.m., the House voted 91-55 for the package with three fiscally conservative Democrats and all Republicans voting against. Lawmakers debated for more than three hours in a session that was halted briefly as legislators watched the Kentucky Derby horse race.

After the House vote, the Senate began debating at about 10:15 p.m. and voted shortly after midnight. Sen. Joan Hartley of Waterbury was the only Senate Democrat to vote against the package.

A major factor in the budget is the recent collapse of the state surplus as revenues were down after the April 15 tax deadline by more than $450 million. That prompted Gov. Dannel P. Malloy to drop his plans for tax rebates of $55 for individuals and $110 for couples that would have arrived in the mail less than two months before this fall’s gubernatorial election.

Because the estimates on the projected surplus were wrong by more than 90 percent, Republicans questioned whether the new numbers released on Saturday were correct. Democrats, though, said the numbers were based on the best analysis by state employees who specialize in tax and finance projections.

The all-funds budget increase of 2.5 percent that was revealed Saturday is higher than the general fund rate of 1.6 percent that was announced by Malloy the previous day.

State Sen. Beth Bye of West Hartford, the co-chairwoman of the budget-writing committee, said in her opening remarks late Saturday night that the spending growth was lower than those in past years.

“Yes, it looks as if spending is lower … because we’ve moved money from one checking account to another checking account,” said Sen. Rob Kane, the ranking Senate Republican on the budget committee.

“It’s bad out there. Our employment rate is still high,” Kane said. “We’ve seen the largest tax increase in our state history, and it didn’t work. … Why is that? Because we continue to spend and spend and spend.”

“Madame President, this budget is bad,” said Sen. Michael McLachlan, a Danbury Republican. “I urge rejection.”

The deal calls for postponing three tax breaks because the state cannot afford them sooner. Malloy called in February for exempting a portion of the pensions of retired teachers from the state’s personal income tax, but now that idea will be stretched over three years. The retired teachers must live in Connecticut, and they would be entitled to an exemption of 10 percent starting in January 2015. They could deduct 25 percent of their pension from the personal income tax in 2016 and then 50 percent in 2017.

For shoppers, the budget says they will no longer pay the 6.35 percent state sales tax on clothing and footwear items that cost less than $50, starting on July 1 when the new fiscal year starts.

The legislature also called Saturday for eliminating the sales tax on nonprescription drugs, including dietary supplements, antacids and antiseptics, starting on April 1, 2015. The sales-tax exemption will not apply for over-the-counter items like mouthwash, soaps and hair-care products.

The sales tax had not been collected on those items for 26 years, but the tax was enacted in 2011 when Malloy and the Democratic-controlled legislature raised taxes on most of the major revenue categories in the state, including personal income, retail sales, corporate profits, estates, alcohol, cigars and cigarettes.

Senate Republican leader John McKinney of Fairfield, who is running for governor, said people must be asking: “What are they doing in Hartford?”

“We’ve heard the budget is balanced from one side. We’ve heard it’s not from another,” McKinney said. “We’ve heard the budget gives modest tax cuts from your side. But we’ve shown from our side that it increases taxes. … How does this make any sense? And I think that’s the problem.”

He added, “Talk to real people in Connecticut. Talk to the families. … We are here again for the fourth year in a row to adopt or adjust a budget that has been a purely partisan one. … But you own the budget and you own the economy we’re in. It’s time to stop blaming others.”

Tickets at the XL Center in downtown Hartford could become less expensive because, under the bill, the venue would no longer be subject to the state’s 10 percent admissions tax. Democrats said the tax cut could jump-start activity at the XL Center and in the surrounding downtown area.

The proposed budget for the fiscal year that begins July 1 also calls for the repeal of keno, a bingo-like gambling game that has caused controversy since it was approved by the legislature last year. Despite the approval, the games never started as opposition mounted from Republicans and anti-gambling advocates. The bill prevents the Connecticut Lottery Corp. from introducing keno, which had been projected to raise millions in the next fiscal year.

Rep. Toni Walker, a New Haven Democrat who is co-chairwoman of the budget-writing committee, said, “The budget before you speaks to the priorities that we all embrace,’’ including municipal aid, transportation, jobs, the environment, criminal justice and health care.

She said the package “provides help to people who need it in Connecticut,’’ including taking steps toward universal pre-kindergarten classes and creating the “CHET Baby Scholars’’ to help parents to send their children to college.

But House Republican leader Larry Cafero of Norwalk compared the state budget to a problem-filled house that is up for sale.

“We’re putting band-aids and duct tape and paint on that basement floor so it doesn’t look like it has a water leak,’’ Cafero told his colleagues on the House floor. “Ladies and gentlemen, we have water in our basement and our roof is leaking. We have to fix the roof and plug the leak in the basement, and the budget before us does not do that. Unless and until we change that foundation, that house will crumble. … This is our opportunity to fix the foundation. The budget before us does not do that.’’

The three Democrats who voted against the package, crafted by Malloy and Democratic leaders, were Ted Moukawsher of Groton, Daniel Rovero of Killingly, and Frank Nicastro of Bristol.

The debate started shortly before 6 p.m. Saturday with Walker’s opening speech, but the House then stopped debating to allow members to watch the Kentucky Derby that started at 6:33 p.m.

At 6:39 p.m., only minutes after the race ended, the announcer boomed over the loudspeaker, “The House will reconvene immediately.’’
After the vote, House Speaker Brendan Sharkey of Hamden said, “This budget is on time, balanced without any new taxes, and under the state spending cap. It invests in our children’s education, helps working families, encourages economic growth, and bolsters the rainy day fund to protect taxpayers from future budget fluctuations.”

The original budget for the 2015 fiscal year was $22.3 billion, but the enacted budget Saturday night was $19 billion after billions of dollars in funding were moved “off-budget” last year after Malloy proposed changes to the state-mandated spending cap.

Sen. L. Scott Frantz of Greenwich said on the Senate floor that Connecticut has received an “F” for budgetary and fiscal policies, along with being ranked 45th in economic competitiveness and record bonded indebtedness. With GAAP accounting and private-sector standards, Connecticut would have a deficit of about $1 billion for the current fiscal year, he said.

“It’s that we cannot resist spending and increasing our spending every year,” Frantz said, adding that spending is on a “compounding trajectory that is unsustainable.”

“I know no one wants to talk about Detroit,” said Frantz, adding that the once-prosperous city of 2 million in its heyday is now down to about 800,000 people. “It looks like a war zone. It is unbelievable.”

He says the combined out-year deficits in fiscal years 2016, 2017, and 2018 are about $3 billion.

Frantz questioned the last-minute addition Saturday of $75 million in projected revenue, including millions that will be collected as a spillover from the tax amnesty program that ended in November 2013.

Sen. John Fonfara, a Hartford Democrat, said he was confident that the state tax department, which is now headed by former Senate President Pro Tempore Kevin B. Sullivan of West Hartford, could recover millions in additional revenue in the next fiscal year.
“As successful as it was, it could have been more successful,” Fonfara said of the amnesty program.