Statewide Outcry over Budget Leads to Changes

Statewide Outcry over Budget Leads to Changes


On the same day Florida’s governor hit Connecticut’s air waves with an aggressive recruiting pitch last month, dozens of business and community leaders rallied at the State Capitol to help make his efforts go south.

It was the climax of a month-long effort to refocus the General Assembly away from an unaffordable state budget and onto jobs and economic growth.

“We’re fighting to keep our companies here,” said the business and community leaders at the rally.

Among those making the case were Joe Brennan, CBIA president and CEO, Paul Timpanelli, CEO of the Bridgeport Regional Business Council, and Adrienne Cochrane, president and CEO, Urban League of Greater Hartford [pictured above].

Choose reforms                                                                                    

They called on lawmakers to reform spending, reject tax increases and adopt the ideas of the Connecticut Institute for the 21st Century to help the state work more effectively and efficiently.

Among the ways to reduce spending and do things better in Connecticut, as recommended by the Institute, is to make more use of the state’s excellent network of nonprofit providers like the Urban League.

In fact, the budget implementer bill lawmakers approved this week requires the governor’s budget director to examine the Institute’s reforms and report findings to the legislature.

Correcting the record

Another speaker at the rally, Andrew Phillips of Ernst & Young and co-author of the 2014 Total State and Local Business Taxes study, corrected a mistaken notion about the work that’s led some policymakers to seek higher taxes.

Results of the study “should not be interpreted to mean that Connecticut is a low-tax environment,” said Phillips. On the contrary, “Connecticut imposes higher-than-average state and local tax burdens.”

Nonprofit support

Strongly supporting the case for keeping jobs in Connecticut was the Urban League’s Cochrane. “To lose the support of our corporate and business partners would strike a fatal blow to many nonprofit organizations,” she said.

The unrestricted donations from corporate partners, said Cochrane, enables the Urban League to fund critical staff and programs and “pay many costs that can’t be borne otherwise.”

Changes made

Ultimately, debate over the potential impact of the spending and tax package on jobs in Connecticut helped convince lawmakers to make changes, and the outcry could refocus the legislature’s efforts going forward on strengthening the state’s competitiveness.

In a special session this week to adopt a bill to implement the new, two-year, $40.3 billion budget, state lawmakers trimmed business tax hikes by a reported $152 million, reducing the overall impact on taxpayers to an increase of $1.859 billion (OFA total for “all appropriated funds tax changes”).

Lawmakers also restored some funding to hospitals and nursing home across the state.

Clearly, the budget debate served an important purpose, putting a spotlight on Connecticut’s economy and the ability of companies to compete in regional, national, and global markets.

As originally adopted by the legislature on June 3, the budget and tax package severely hurt companies’ ability to compete.

But lawmakers’ willingness to reopen the budget and make changes has started undoing some of the damage. Governor Malloy and the General Assembly responded to the concerns voiced by businesses and their workforces.

State policymakers can’t stop now.

Taken as a whole, the budget doesn’t help Connecticut’s overall competitiveness. Even with the changes made, it increases taxes and spending, and decreases incentives for business investment in the state.

Tax increases

Among other things, the new budget:

  • Reduces the value of corporate tax credits from 70% to 50%
  • Reduces the use of net loss carryforward(NOL) to 50% of net income in any income year
  • Institutes mandatory combined reporting—starting in 2016
  • Extends the corporate tax surcharge for at least another two years
  • Increases the personal income tax on high wage earners

However, lawmakers kept the sales tax on computer and data processing services at 1%, instead of a planned increase to 2% in 2016 and to 3% in 2017.

Break the cycle

What’s more, the budget reinterprets the state’s constitutional spending cap to allow increases of 4.05% in the first year and 3.19% in the second.

And even as this budget attempts to close a projected $3 billion budget deficit for the new biennium, the state is looking at another deficit, of about $830 million, in three years, says the legislature’s nonpartisan Office of Fiscal Analysis.

Policymakers need to break that cycle of tax hikes and budget deficits by aggressively pursuing structural reforms to more efficiently deliver services, reduce long-term costs, and stabilize the state’s economy to benefit everyone who lives in Connecticut.

Perhaps to start that effort, lawmakers called for a new state commission to help develop policies promoting economic growth.

The CT20x17 campaign has continually emphasized that policies encouraging economic growth also mean providing the resources needed to take care of Connecticut’s citizens—it’s not an either/or proposition.

Connecticut employers of all sizes and types—and the people and families who work for them—want the state to be a better place to live, work, learn, and raise a family.