Republicans Share Concerns – State Deficit Continues To Worsen Amid Weaker Tax Revenue [Courant]

Article as it appeared in the Hartford Courant

HARTFORD — With the income tax, cigarette taxes and casino money all coming in lower than expected, the governor’s budget office is now projecting a deficit of nearly $162 million in the current fiscal year.

State officials released their consensus revenue estimates Thursday, saying the income tax is projected to generate $65 million below the level assumed by the legislature when the budget was crafted.

The biggest portion of the income tax that was lower than expected was the estimated and final payments made by the state’s wealthiest taxpayers, which generally includes capital gains from Wall Street. That total grew by 14 percent compared to April 2014, but officials had announced they were hoping for a 25 percent increase in order to balance the budget.

“There are still two months in the fiscal year until June 30th,” said Ben Barnes, Gov. Dannel P. Malloy’s budget director. “We will take appropriate action to achieve additional cost savings and keep our state’s budget balanced for the year.”

The revenue estimates are important this year because the legislature and Malloy are trying to close a projected $1.3 billion deficit in the next fiscal year and $1.4 billion in the following year. They are expected to negotiate in the coming weeks in an attempt to finalize the two-year, $40 billion budget before the legislature’s scheduled adjournment on June 3.

Overall, the income tax is now projected to generate $9.2 billion in the current fiscal year – the largest tax by far and more than double the second highest, which is the sales tax. The sales tax will generate $4.22 billion, which is nearly $54 million better than the original budget plan. The corporate profits tax is also better than expected at $756 million, up nearly $52 million from the original projections.

Collection of cigarette taxes was down $6.5 million, and the state’s share of the slot machine revenues at the two Indian casinos dropped by $13 million to a projected $265.5 million. The casino collections have fallen in a steady downward trend since reaching a peak of $430 million in the 2007 fiscal year. Since then, revenues and employment have dropped steadily at Foxwoods Resort Casino and Mohegan Sun because of competition from slot machines at places like Yonkers Raceway in Westchester County, N.Y. and Aqueduct racetrack in Queens, N.Y.

The consensus revenue estimates now predict that the state’s share of the casino money will drop to $189 million in the 2018 fiscal year because the $800 million MGM Resorts International casino is expected to open just over the Massachusetts border in Springfield by Christmas 2017.

As the casino money has declined, the total collected from the state lottery has surpassed the slot machine revenues. That total is projected to reach $325 million in the current year and is expected to increase in the future if keno gambling is legalized. The legislature’s tax-writing finance committee voted in favor of keno on Wednesday, but keno had been approved in the past before later being rejected by the legislature before the games could begin. The recommendations by the finance committee are still subject to approval by the House, the Senate and Malloy.

The new numbers Thursday came out at a time when the legislature’s budget-writing committee intends to spend $600 million more than Malloy over the next two years, and the finance committee wants to raise a variety of taxes that Malloy had avoided.

Malloy has avoided using the word veto, but he says he does not agree with the size of the tax package that the Democratic-controlled committee approved Wednesday.

“He’s not going as far as a veto threat as he doesn’t want to pour gasoline on the fire, but he’s been very clear that he doesn’t think either alternative budget makes the tough choices necessary,” said Mark Bergman, Malloy’s communications director. “The Republican plan isn’t serious because they don’t have a realistic way of paying for what they promised, and the Democratic alternative adds too much of a burden on the middle class and working families.”

Republicans were concerned Thursday with the latest numbers, saying that Malloy should have made cuts sooner in this year’s budget. Malloy, however, has said that he has been making a series of midyear cuts to pare spending in more than 25 departments and agencies across the state government.

“Month after month, in letter after letter, we have warned Gov. Malloy that hesitation will lead to devastation,” said Senate Republican leader Len Fasano of North Haven. “Despite those repeated warnings, Gov. Malloy has been either unable or unwilling to confront our state’s fiscal crisis. Republicans have offered him solutions and advice, and he has dismissed us time after time. This mess is Gov. Malloy’s. It’s a reflection on his leadership. Unfortunately, state residents will be the ones who will have to clean this mess up.”

House Republican leader Themis Klarides of Derby agreed.

“Given the trends and the fiscal policies put in place that continue to thwart economic growth and jobs, it should come as no surprise that the revenues fell short of what was anticipated,” Klarides said. “The governor promised we would end the year in balance but with this latest news, that appears unlikely. The possibility of covering a deficit with rainy day funds was not what anyone had in mind when he made those promises.”

Sen. Beth Bye, D-West Hartford and co-chairwoman of the appropriations committee, said the new numbers “will make the negotiations [over the budget] even more challenging than they were yesterday.”

But Bye said the revenue numbers need to be viewed in the context of the overall $20 billion state budget. “We’ll get there,” she said. “We all just have to get in the room and balance the budget.”

Unlike the finance committee, Malloy did not propose any increases in the personal income tax on wealthy taxpayers for the next two years. The finance committee, however, voted for sweeping changes that would increase the income tax to 6.99 percent on individuals earning more than $500,000 and couples earning more than $1 million per year.

In addition, lawmakers would impose a new, supplemental 2 percent capital gains tax on those same high-income residents, raising a projected $167 million in capital gains taxes in the next fiscal year.

The finance committee also called for $322 million in sales taxes from services that are not currently taxed, including architectural, engineering and veterinary services.