No major tax increases in new state budget

(June 26, 2007) With a nearly $1 billion state budget surplus projected this year and a similar amount tucked into Connecticut’s Rainy Day Fund, state lawmakers and Gov. Rell agreed on a $36 billion, two-year budget that significantly increases spending for education and health care but avoids major tax increases.

The House approved the package early Saturday morning by a 134-5 vote, and the Senate followed suit with a 33-1 vote on Monday afternoon.

State spending will increase by 8.8% in the first year, which begins July 1, and by 4% in the second year. The budget will be $690 million over the state spending cap in the first year and about $29 million under in the second.

While taxes on cigarettes will be increased by 33%, to $2 per pack, there will be no increases in the state’s personal income tax, sales tax or corporate income tax.

Education spending will increase substantially, although not as much as policy-makers originally wanted. The plan includes funds for educational improvement and accountability measures, as well as about $260 million more over the two years in local Educational Cost Sharing grants.

Health care spending also increases, with about $470 million for a package of health care initiatives that increas support for nursing homes and nonprofit health care providers; expand the HUSKY program; and boost Medicaid reimbursement payments to doctors, hospitals and dentists.

Other priorities receiving additional funding include transportation, housing, energy and brownfield remediation.

Compromises made
Both sides backed away from several of their proposals in order to reach an agreement prior to the start of the new fiscal year. In the end, the only tax modified was the state’s cigarette tax. However, lawmakers commissioned four studies, three concerning the feasibility of a cap on local property taxes, implementation of an earned income tax credit, and elimination of the estate tax. A fourth study would explore enrollment in the Streamlined Sales and Use Tax Agreement, which would pave the way to sales taxes on Internet transactions.

Higher spending
As the General Assembly moved closer to adjournment in early June, news arrived about the burgeoning state budget surplus and strong revenue projections for the next few years. A statewide poll also revealed that Connecticut taxpayers were most concerned about taxes and the economy. Under those conditions, it became apparent that no state taxpayers should have to face a tax increase of any kind this year.
Meanwhile, CBIA and the business community were urging lawmakers to address such key priorities as education, health care and housing in a responsible, affordable manner.

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

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