State Budget Finalized [Courant]

July 1, 2015

Hartford Courant
HARTFORD — Gov. Dannel P. Malloy signed legislation Tuesday that establishes a two-year, $40 billion state budget and rescinds $178 million of the nearly $1.5 billion in tax increases the legislature approved on June 3.

The budget package generated much criticism during its preparation, particularly from large corporations, and the final budget implementation bill adjusted several controversial business taxes that had been proposed. The legislature, called to a special session, approved the final bill in votes late Monday and early Tuesday.

Malloy thanked top Democratic leaders for their work on the spending plan, which includes initial funding for Malloy’s ambitious 30-year, $100 billion transportation initiative.
“I’m very proud to pass the budget as amended,” Malloy said.

The first budget package was immediately attacked by corporations, lobbyists and virtually all Republican legislators, who argued that its tax increases would harm the state’s business environment. Fairfield-based General Electric Co. was especially incensed about a proposed unitary reporting system that would increase taxes on some major corporations, but unitary reporting was postponed until the 2016 calendar year.

The budget-implementation bill passed early Tuesday by a vote of 78-65 in the House of Representatives, with eight members absent. Two House Democrats, David Alexander of Enfield and John Hampton of Simsbury, joined with Republicans in voting against the measure.

Late Monday, the bill passed in the Senate, 19-17, with two conservative Democrats, Joan Hartley of Waterbury and Paul Doyle of Wethersfield, voting no.

Senate President Pro Tem Martin Looney of New Haven and House Speaker Brendan Sharkey of Hamden praised the budget they helped negotiate. Despite some of the 11th hour changes, the two Democratic leaders maintained that what they call the “fundamental pillars” of the legislation — transportation funding and property tax reform — remain intact.

“Everybody should be happy to adopt this,” Sharkey said.

In addition to raising taxes on the wealthy and corporations, the budget increases taxes on the middle class, including a $152 million increase over two years coming from changes in the property tax credit for income tax filers. The credit will drop from $300 to $200, and the income threshold to qualify for the credit will decrease. Households making up to $100,500 annually are now eligible for the maximum credit, but that threshold will drop to $70,500.

Consumers will pay an additional $279 million over two years because the 6.35 percent sales tax will now be imposed on clothing and footwear items under $50. The state cigarette tax of $3.40 per pack will increase by 25 cents in the first year and 50 cents in the second year of the two-year budget.

However, middle-class taxpayers will be the primary beneficiaries of expected cuts in the personal property tax on vehicles. The cuts will be deepest in large cities, legislators have said. For instance, a Waterbury resident who drives a 2013 Honda Accord that is valued at $18,000 would see a car tax decrease of $364 a year, while the owner of the same car in Greenwich would see no change.

As he signed the budget bill, Malloy pointed out that Connecticut has done better with its budget than some other states.

“We make mistakes when we talk about Connecticut [and] pretend that somehow we are different than every other state,” the governor said.

“Massachusetts doesn’t have a budget today. New Hampshire doesn’t have a budget today. To the best of my knowledge, Maine doesn’t have a budget today. To the best of my knowledge, Illinois doesn’t have a budget today. … There are other states that don’t have a budget today.”

But Senate Republican leader Len Fasano of North Haven disagreed with that view, noting that nonpartisan fiscal analysts are already predicting a deficit of more than $750 million at the end of the two-year budget.

“Gov. Malloy told us there would be no tax hikes, but what did he just do?” Fasano asked. “He just signed the second largest tax hike in state history into law.

“Why did he go back on his word? Why did he break his campaign promise? Why won’t he just admit that he broke his pledge to the people? I hope that a year from now, when Connecticut will, without a doubt, be facing another deficit, the governor will have the courage to own up to the fact that this budget did nothing to change the structure of how our state taxes and spends.”

Sharkey downplayed projections that deficits would continue.

“I think those projections are greatly impacted by the growth of the national and state economy,” Sharkey said. “This budget sets us on a trajectory towards growth, and so my expectation is that that growth will mitigate those estimates that we currently have been offered. I think we’ll see that growth coming in the next two years, and then we will not be facing those deficits.”

But Republicans continued to criticize the budget and the idea of creating a special tax commission to study the impact of the taxes that the legislature already decided to raise. Legislators said they have consulted with the 10,000-member Connecticut Business and Industry Association on the creation of the commission, which would include an economist, the owner of a small business, an executive at a publicly traded corporation and an attorney, among others.

Other key provisions of the budget bill include:

•Maintaining the state sales tax on computer and data processing services at the current level of 1 percent, rather than increasing it to 3 percent and saving corporations $123 million over two years.
•Postponing the enactment of a new unitary tax on major corporations until January 2016.
•Setting aside $30 million over two years in additional money for the state’s cash-strapped hospitals.
•A call for reductions in future raises for state employees in the second year, although that proposal must be negotiated with the unions.
•Cutting an additional $25 million across the board to help balance the budget.

Republicans noted that the budget contains several new initiatives that would require hiring new state employees, but Malloy said many of those positions are not funded.

“There are lots of things in the budget that call for more employees,” Malloy said. “There will be some more people in the transportation department, but they probably will be paid for more likely by other positions not being filled in other departments.”