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Partisan rift threatens efforts to close CT budget deficits


And while they also pledged to reach for a bipartisan compromise, no one expressed optimism this would be achieved before Connecticut’s next governor ... cigarette and real estate conveyance taxes, along with bottle deposit fees.


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Keith MPhaneuf / CTMirror.org file photoTop Senate leaders: Democrat Martin Looney, left, and Republican Len Fasano A partisan rift centered on taxes and state employee benefits threatens to derail legislative efforts to balance the state budget — both in the current fiscal year and the fiscal cycle beginning July 1. Democratic and Republican legislative leaders, who returned this week to the Capitol to open the 2018 session, conceded they are sharply divided on how to wipe more than $400 million in red ink off Connecticut’s books. And while they also pledged to reach for a bipartisan compromise, no one expressed optimism this would be achieved before Connecticut’s next governor takes office 11 months from now. “I don’t think anyone can predict what happens in this building,” said Senate Republican leader Len Fasano of North Haven. “The one thing I can be confident in is my work ethic,” said House Speaker Joe Aresimowicz, D-Berlin“We certainly will try.” What are leaders trying to solve before the session closes on May 9? According to Comptroller Kevin PLembo and GovDannel PMalloy’s administration, the current fiscal year — which closes June 30 — is on pace for a $245 million deficit. And the preliminary budget for the fiscal year starting July 1, which was adopted as part of a two-year plan last October, already is $165 million in the red, according to the governor’s budget office. Several other risky assumptions in the plan easily could push the built-in shortfall, the administration says, closer to $300 million. But legislators averted a much larger potential deficit four months ago when they adopted the latest state budgetWhat’s hindering their efforts to do so again? Problems were postponed, not solved Legislators swept hundreds of millions of dollars from one-time sources and specialized accounts to pay for ongoing expenses in that planMost of those solutions no longer are availableAnd when those one-time monies are exhausted — after this fall’s state election — the next governor must craft a new budget with a built-in hole of $2.2 billion in the first year and $2.9 billion in the second, according to state analysts. Election-year politics Traditionally, legislators from both parties are reluctant to consider tax hikes in even-numbered years, when there is a state election. And many of Malloy’s proposals for closing the deficits for this fiscal year and next involve revenue. To close the $245 million gap this fiscal year, Malloy released options in December that included raising the sales tax rate from 6.35 percent to 6.9 percent, and boosting the charge on restaurant transactions from 6.5 percent to 7 percent. His proposal to avert the $165 million shortfall in 2018-19 includes a wide array of smaller tax hikes that together would raise more than $230 million per year, involving the income, sales, corporation, cigarette and real estate conveyance taxes, along with bottle deposit fees. ‘FEW EASY ANSWERS LEFT’ GovDannel PMalloy’s new budget proposal features a broad array of small tax hikes that collectively would raise more than $235 million next fiscal yearWith the majority of the budget tied to fixed costs — some of which are growing rapidly — and with lawmakers unwilling to spread teacher pension costs onto municipalities, Malloy says Connecticut has few other options to balance its books starting July 1. Tax or Fee Type Description FY 19 Impact (in millions of dollars) Income Eliminate property tax credit $49.7 Income Eliminate new Social Security and pension exemptions $16.1 Sales Raise hotel occupancy tax rate from 15 to 17 percent $16.7 Sales Close exemption for nonprescription medicine $30.0 Corporation Lower 10 percent surcharge to 8, instead of eliminating it $18.0 Corporation Other buisness tax changes $29.0 Cigarette Raise tax from $4.35 per pack to $4.60 $20.0 Cigarette Raise other tobacco levies $12.2 Real Estate Conveyance Increase 0.75 percent rate to 0.85, 1.25 percent rate to 1.4 $22.9 Bottle Bill Expand deposit program to wine, liquor, tea and sports drinks $20.0 Total $235.6 Source: Office of Policy Management Klarides says House Republicans compromised last fall when they supported modest income, cigarette and hospital tax hikesAnd given that Connecticut taxpayers faced much larger increases in 2011 and 2015, she says the revenue option is off the table. “The Democrats always go back to their old playbook: Let’s go raise more money from the people of this state,” she said, adding the state’s economy has paid a stiff price for past tax increases“Every time we have to go through this, it becomes increasingly more difficult.” Keith MPhaneuf / CTMirror.orgHouse Minority Leader Themis Klarides and House Speaker Joe Aresimowicz. House Speaker Joe Aresimowicz, a Berlin Democrat counters that it’s easy to take tax hikes off the table; the hard part is cutting some other program instead“There’s no more fat,” he said“There’s no easy cuts.” Malloy warned the legislature on Monday when he released his latest budget plan that “there are few easy answers left.” Legislators rebuffed his proposal last year to shift a portion of skyrocketing teacher pension fund contributions onto cities and towns, and also said nothing in December when Malloy suggested more cuts to municipal aid to help close this fiscal year’s deficit. Most of the fastest-growing segments of state financing are fixed, at least to some degree, by contract — specifically retirement benefit programs and other debt costs. Differing legal opinions Fasano insists there is an alternative, but Democrats don’t want to face it. Pension and retirement health care benefits for state employees are fixed by a contract that runs through mid-2027. The Senate GOP leader offered a plan last spring to order benefit reductions effective in the second-half of 2027 — but take some of the savings in the budget now. Malloy, Democratic legislative leaders and state employee unions insist this would violate collective bargaining laws and set Connecticut up for a court battle it would lose. “That was a particularly irresponsible component of the budget talks,” Senate President Pro Tem Martin MLooney, D-New Haven, said“That’s not a real suggestion.” Aresimowicz agreed with Looney that Democrats won’t accept that as a means to close the current deficits. Fasano countered that Democratic leaders need to check their history. “Not all Democrats may have the same view as Senator Looney and the speaker,” he said, referring to three Democrats in the Senate and five in the House who voted last September for a GOP budget proposal that included the 2027 retirement benefit changes. Malloy vetoed that budget and another package — absent those benefit changes — passed with stronger bipartisan support in October. “The fixed costs are what is killing our state,” Fasano said“We’ve got to look at ways to reduce those fixed costsThat’s why we all have to get into the room and have a discussion about choices like this.” Technically, the legislature doesn’t have to deal with this problem right now. If the state closes this fiscal year in deficit, officials first must draw upon the emergency budget reserve — or Rainy Day Fund — which holds about $212 million. [That reserve could grow to almost $890 million, based upon a $665 million increase in December income tax payments related to capital gainsBut analysts have warned much of that may only be an advance on payments taxpayers’ otherwise would have made in April, and there could be little or no windfall once the books are closed after June 30.] If the Rainy Day Fund is not sufficient to cover any fiscal year-end deficit, then the state treasurer must borrow to cover the difference. And as for the $165 million deficit projected for the preliminary budget in place for 2018-19, there is precedent for ignoring that as well. In May 2008, GovMJodi Rell warned lawmakers that the preliminary budget they’d adopted for the fiscal year beginning that July 1 had a built-in hole of nearly $120 million. [Later that summer, nonpartisan analysts would confirm a gap of $139 million.] The legislature nonetheless adjourned and dealt with the deficit in the spring of 2009. Print Filed Under: Budget/EconomyPoliticsbudget2018Connecticut state budgetincome taxsales tax About Keith MPhaneufMore by this authorKeith, with Jacqueline Rabe Thomas, won first prize in investigative reporting from the Education Writers Association in 2012 for a series of stories on the Board of Regents for Higher EducationThe former State Capitol bureau chief for The Journal Inquirer of Manchester, Keith has spent most of 24 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut's transportation and social services networksA former contributing writer to The New York Times, Keith is a graduate of and a former journalism instructor at the University of ConnecticutE-mail him at kphaneuf@ctmirror.org. More About Budget/EconomyPoliticsbudget2018Connecticut state budgetincome taxsales tax Senate stumbles on way to vote on budget bill with plenty for CTWASHINGTON – The Senate hit a snag Thursday as it moved to vote on a massive budget deal that would increase federal spending in Connecticut, providing big boosts for the state’s defense industry and health care programs and even helping schools educate displaced students from Puerto Rico. AFL-CIO chief suspects fiscal panel is anti-laborNappier, Malloy divided over how to fix teacher pension fund View all Budget/Economy Posts → Senate stumbles on way to vote on budget bill with plenty for CTWASHINGTON – The Senate hit a snag Thursday as it moved to vote on a massive budget deal that would increase federal spending in Connecticut, providing big boosts for the state’s defense industry and health care programs and even helping schools educate displaced students from Puerto Rico. Nappier, Malloy divided over how to fix teacher pension fundBysiewicz acknowledges she's ruled out a state Senate race View all Politics Posts → Nappier, Malloy divided over how to fix teacher pension fundState Treasurer Denise LNappier warned this week that GovDannel PMalloy’s recommendation that Connecticut defer and otherwise restructure contributions into the teachers’ pension fund could jeopardize the state’s standing on Wall Street. Malloy offers strategies to counter federal tax changesA cartoon primer on how the union concessions vote works View all budget2018 Posts → Malloy to take one last shot at balancing CT's booksGovDannel PMalloy will use the final budget proposal of his tenure next week to urge lawmakers to close a nearly $165 million gap in next fiscal year’s finances and mitigate much larger shortfalls facing his successor. Panel: CT could reap big savings with more competitive biddingCT, NY and NJ to sue over tax changes that hit blue states View all Connecticut state budget Posts → Malloy to take one last shot at balancing CT's booksGovDannel PMalloy will use the final budget proposal of his tenure next week to urge lawmakers to close a nearly $165 million gap in next fiscal year’s finances and mitigate much larger shortfalls facing his successor. Malloy blasts federal tax bills as an 'abomination'Big deficits two years from now could undercut tax cut promises View all income tax Posts → Malloy to take one last shot at balancing CT's booksGovDannel PMalloy will use the final budget proposal of his tenure next week to urge lawmakers to close a nearly $165 million gap in next fiscal year’s finances and mitigate much larger shortfalls facing his successor. House sends veto-proof, bipartisan budget to MalloyAfter 117-day marathon, Senate passes bipartisan budget View all sales tax Posts → Previous PostDEEP wants sneak environmental permit rule reversedNext PostBysiewicz acknowledges she's ruled out a state Senate race Comments comments Our SponsorsMorning Briefing Receive Our Free Daily Briefing #mc_embed_signup{background: none; clear:left; font:14px Helvetica,Arial,sans-serif;position:relative;width: 100%; margin-bottom: -44px;margin-top: -12px;} #mc_embed_signup .mc-field-group { padding-bottom: 10px; margin-bottom: 0; min-height: 0px !important; position: static; } #theButton { margin-top: 0px; float: right; z-index: 1000 !important; border-radius: 0; } #mc_embed_signup .mc-field-group input { padding: 8px 0 8px; font-size: 10px; text-transform: uppercase; font-family: "Futura",Arial,sans-serif; letter-spacing: 1px; } #mc_embed_signup .button { border-radius: 0px; height: 31px; font-family: "Futura","Arial",Sans-serif; text-transform: uppercase; font-size: 11px; padding: 0px 12px; margin: 0; position: absolute; top: 10px; right: 0; background: #ddd; color: #434343; } #mc_embed_signup .button:hover { background: #EDE698;} #mc_embed_signup div.response { float: left; margin: 0px 0; padding: 0 0; font-weight: bold; float: left; top: 0em; left: -0; z-index: 1; /* border: 1px solid #ccc; */ width: 100%; background: white; font-size: 12px; } #mc_embed_signup form { display: block; position: relative; text-align: left; padding: 10px 0 0px 0%; } #mc_embed_signup input.email { width:100%; } input#mce-EMAIL:focus { outline: none; } #mc_embed_signup input { border: 1px solid #ddd; -webkit-appearance: none; border-radius: 0px; }

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