Budget talks should weigh impact of proposed spending increases on state’s economy

(May 4, 2007) Negotiations on a new two-year state budget are now taking place between Gov. Rell and legislative leaders, who now have three different approaches to solving Connecticut’s challenges before them — proposals from the governor, majority Democrats (contained in HB-7077 and SB-1390) and House Republicans.

The approach they ultimately agree to take will have a significant effect on the state’s economy and ability to create more jobs. And as the 2007 legislative session enters its stretch drive, it’s apparent that more attention needs to be paid to how business costs and state spending affect economic growth and job creation.

All of the budget proposals now being considered substantially increase state spending and bypass the state’s spending in order to do that. What’s more, lawmakers are still considering proposals that would dramatically increase other costs in Connecticut, including for workers’ compensation and health care, along with proposals that will make it more difficult to do business in the state.

Research has shown that states with high business costs create fewer jobs than those with lower costs, and we have been experiencing that in Connecticut, creating jobs at a slower rate than many states nationwide. Over the last 20 years, Connecticut’s state budget has tripled while job growth – albeit while recently increasing – has been fairly nominal.

Budget proposals
It’s clear that Connecticut has major challenges that need to be addressed. And each of the budgets proposed this year agrees with Connecticut’s business community that the state needs to improve its education and health care systems and tackle other significant factors such as energy and business costs that are affecting the state’s recently sluggish economy.

The issue is how to do all of that in a responsible and affordable manner.

Budget and revenue packages approved by the Appropriations and Finance committees and supported by majority Democrats, HB-7077 and SB-1390, respectively, raise spending and taxes by nearly a billion dollars.

At risk by this plan, which increases the income tax on higher-income earners, are thousands of small businesses and entrepreneurs. That’s because most of these businesses are pass-through entities that pay taxes on business income through the personal income tax.

And since these types of businesses are looked to as key sources of job creation, increasing their taxes significantly puts a chilling effect on their ability to invest and grow in Connecticut.

The Republican budget proposal exceeds the spending cap by putting more money into health care and education, but does it at a lower level than other budgets. CBIA hopes that some of their ideas to minimize spending increases will be incorporated in the final budget being negotiated.

Lawmakers can help Connecticut’s economy grow by promoting a vibrant, pro-jobs business climate, one with business costs that don’t undermine the ability of companies to compete and succeed. And that should start with approving a responsible and cost-effective state budget that keeps state spending under control. 

Last session marked the first time in years that all four legislative caucuses and the governor’s office made economic growth and job creation their number one priority. Positive legislation gained approval and actually got done. But economic growth cannot be a one-year effort – policy-makers need to be vigilant in nurturing our economy every year.

CBIA urges policy-makers to reduce the level of spending and taxes and approve a plan that will be affordable and will make Connecticut more competitive for job growth.

For more information, contact CBIA’s Bonnie Stewart at 860-244-1925 or stewartb@cbia.com.

CBIA Action Center

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