Looney proposes financial reforms as budget negotiations begin; Fasano disagrees with Dems [NH Register]

May 4, 2015

Article as it appeared in the New Haven Register

HARTFORD >> They have advocated for these changes for years.

Martin Looney, D-New Haven, four months into his new job as state Senate president, has gotten major tax revisions out of committee and ready for final budget negotiations with the administration, as well as a new proposed revenue stream for towns.

The proposals include a new approach to car taxes as well as for compensation to municipalities constrained by a high percentage of tax-exempt properties within their borders.

“None of this is new, but just the political will to do it may be new,” Looney said of the effort to get these enacted in the next month before the legislative session wraps up.

House Speaker Brendan Sharkey, D-Hamden, has worked on regional cooperation over the years and put forth previous plans to change the car tax where citizens would no longer pay hundreds more for the same vehicle depending on their town’s tax mill-rate.

While individuals would be helped in all the previous car tax versions, the loss of revenue to the towns killed those efforts.

This plan would cap the mill-rate on cars at 29.36, which would cut tax bills in half for residents in towns with the highest mill rates; residents in more than 70 towns would get a direct tax cut, according to Looney.

The lost revenue to municipalities would be covered through a combination of increased PILOT aid and new local revenues from the sales tax, he said.

On Oct. 1 of this year, the state sales tax rate falls from 6.35 percent to 5.85 percent, under this plan. Then on July 1, 2016, it falls again to 5.35 percent.

But the proposal also calls for a separate 0.5 percent municipal sales tax rate beginning on Oct. 1 with all the resulting revenues — an estimated $300 million — put into a Municipal Revenue Sharing Account with 90 percent distributed to the towns and 10 percent to the regional Council of Governments.

“Providing an extra revenue stream for municipalities, that’s a key thing. They have been complaining for years that they are hamstrung by the property tax as their only revenue source and whatever they get from state grants,” Looney said.

Combining the two tax rates, the effective net sales tax rate stays at 6.35 percent until it falls to 5.85 per cent on July 1, 2016, the first day of fiscal 2017.

It generates additional revenue because Finance, Revenue and Bonding has voted to broaden the base of items covered by the sales tax to include such things as engineering, veterinarian and accounting services.

The new revenue stream for the COGs could finance such things as a regional emergency dispatch center, regional health districts or animal shelters, whatever the towns agreed to.

On the regional issues, both Sharkey and Looney said they have been trying to foster this for a long time.
“We want to get communities to look beyond the boundaries of their 169 little fiefdoms and engage in more cooperative projects. These resources are being put in to make that possible,” Looney said.

Senate Bill 1 also has a modified version of the tax-based sharing formula in existence in Minnesota and some other states where towns have an option to create a regional pool where up to 20 percent of property taxes from a new industrial or commercial development could be shared among them.

Looney has been talking about various aspects of these changes since he was chairman of the Finance Committee a dozen years ago.

There are elements of the Blue Ribbon Commission on Property Tax Burdens and Smart Growth Incentives, a task force chaired by then New Haven Mayor John DeStefano Jr. in 2002 and Connecticut Metropatterns, authored by Myron Orfield and funded by the Urban Affairs Office of the Archdiocese of Hartford in 2003.

The current legislation also has a soft cap on municipal spending related to the new revenue source.

If a town increases its budget by more than 2.5 percent or the rate of inflation, whichever is greater, there will be a downward adjustment on their sales tax distribution.

“We want to target this toward tax relief,” Looney said. “This gives the towns an incentive to lower the tax burden, both on individuals and businesses.”

The additional funds from the PILOT revisions, the new sales tax revenue and the car tax changes for towns in Greater New Haven include:

Ansonia, $1.2 million; Branford, $2.9 million; Derby, $1.1 million; East Haven, $2.7 million; Guilford, $2.3 million; Hamden, $4.9 million; Madison, $1.9 million; Milford, $5.5 million; New Haven, $17.9 million; North Branford, $1.5 million; North Haven, $2.5 million; Orange, $1.3 million; Wallingford, $4.7 million; West Haven, $5.5 million; Woodbridge, $530,074.

The governor has proposed dropping the sales and use tax rate from 6.35 percent to 6.2 percent effective Nov. 1 and 5.95 percent effective April 1, 2017.

Sharkey and Looney said the consensus among the Democratic majority was to implement the tax changes now, rather than in the second year of the biennium budget.

They are part of the larger revenue package adopted by Finance, Revenue and Bonding which increases the top income tax rate from 6.7 percent to 6.99 percent on joint filers with incomes over $1 million. Also, the capital gains rate will go to 8.99 percent for persons in this same tax bracket.

Finance has proposed a total of $1.8 billion in new taxes over two years in order to cover expenses and close the projected $2.7 billion deficit through fiscal 2017. The package also keeps the 20 percent corporate tax surcharge in place for another two years and introduces Keno gambling.

The Appropriations Committee recently adopted a $40.5 billion two-year budget that restores many of the social services and Medicaid funding cuts proposed by Malloy. It also relies on an expanded interpretation of the state’s spending cap.

“We are the only budget that is balanced,” Sharkey said, referring to the latest consensus report out of the Office of Fiscal Analysis and the Office of Policy and Management.

“This was the time to address the reality of our budget problems, but also reform our tax policies,” he said, while providing some longer term stability and tax relief for taxpayers.

The Republican minority has condemned the spending and tax packages approved by the Democrats,
Sen. L Scott Frantz, R-Greenwich, told CtNewsJunkie that “it’s a sad day in Connecticut when we once again have to look at increasing taxes.”

“There may be hundreds of people who will be put out of business as a result of some of these sales taxes on businesses and industries,” Frantz predicted.

State Senate Minority Leader Len Fasano, R-North Haven, said he has little confidence that the proposed municipal sharing account will be in effect for long, given the legislature’s past performances.

He said a previous attempt fell through, while millions owed to the towns and hospitals under other programs were not shared; the tobacco settlement was not used for education.

“Let’s be frankly honest. This is not going to happen,” Fasano said. “The list gets exhaustive. There are more exceptions than there are rules.”

Fasano has been a consistent critic of the PILOT program and said he would only support it if the money went directly to urban community leaders with the state as a trustee to address issues of poverty, rather than the city governments.

He accused the cities of using state money to “fatten” their administrations and satisfy more aggressive contract negotiations.

Malloy has also weighed on the tax plan, through his spokesman, Devon Puglia, who said “it asks far too much of Connecticut’s middle class and small businesses.”

Both Looney and Sharkey disagreed.

“We don’t see it that way. Individuals in at least 70 communities, are going to get a substantial amount of tax relief because their car taxes are going to be substantially lowered … and also because the sales tax distribution is going to provide broad based property tax relief,” Looney said.

Sharkey hopes that over time, when lawmakers and the governor get a better look at the proposal, they will come around.

“This budget seems to be consistent with what the governor has been saying nationally on embracing Democratic principals,” Sharkey said. Malloy has already assumed leadership roles with the national Democratic Party and will become head of the Democratic Governors Association in the 2016 presidential election year.

Sharkey said with Looney now the Senate president, the two of them are continuing to work on issues of mutual concern.

“There is a lot of synergy between the House and the Senate. We all recognize that these issues have to be addressed,” he said.

Despite the Republican criticism, Sharkey said the Appropriations budget has many ideas from the GOP, including clamping down on overtime, a better Rainy Day process and a recognition of the needs of nonprofit human service agencies.

“The package overall has a system of reforms that I think everyone can agree on,” Sharkey said.

An alternative budget proposed by the GOP depends to a large degree on concessions from state employees, whose pension and healthcare provisions are in place for several more years. There is no talk of layoffs, but a recent lawsuit over past state actions would seem to make such an action problematic.

Attorney General George Jepsen is proposing that the state settle a lawsuit it lost when Gov. John G. Rowland in 2003 fired more than 2,000 union workers. The Second Circuit Court of Appeals ruled against the state because Rowland fired only union workers which had a minimal impact on that year’s budget, according to CtNewsJunkie.