Governor Malloy this week proposed a $43.8 billion state budget for the next two fiscal years that increases current spending by more than 9% over the biennium and extends three business taxes that were set to expire.     

Connecticut’s businesses are concerned with the proposal’s overall increases in spending and borrowing, as well as the extension of the corporation tax surcharge, electric generation tax, and insurance premium tax credit limit that were to sunset on June 30. CBIA is urging lawmakers to look for and enact further spending cuts so that these taxes expire as scheduled.

Also of concern are several proposed changes to the state’s constitutional spending cap.

Getting Connecticut’s fiscal house in order is critical to restoring economic growth--which is the key to solving the state’s recurring budget deficits and shortfalls and getting people back to work.

Connecticut’s best economic development tool, said John Rathgeber, president and CEO of CBIA, is “making the changes needed to control spending, demonstrate fiscal discipline, and make government more efficient.”

CBIA recently issued a report outlining many ways to reduce state spending, increase the effectiveness of state government, and improve the delivery of critical services.

Economic Priorities

The governor did put forward a number of initiatives designed to help our economy grow in the 21st century. Among his proposed initiatives are those boosting STEM (science, technology, engineering and math) instruction at the University of Connecticut (“Next Generation Connecticut”), the state’s biosciences sector, and early education (a new state office, and an increase in the educational cost sharing formula).

Also positive was the governor’s commitment to the state’s successful Small Business Express program that has already helped 500 businesses and has a waiting list.

In addition, through bonding, he wants to provide support to towns for schools, roads and bridges, and economic development programs. 

In other tax changes, the governor proposes to exempt most vehicles in Connecticut (the first $20,000 in assessed value) from the property tax; reinstate the tax exemption for clothing up to $25; and offer a personal income tax “tax amnesty” program.

Streamlining Government

Making government more effective and efficient is paramount to controlling state spending, and the governor proposed some more state agency consolidations and centralized functions.   

Prior to the budget address the governor announced plans to rebalance long-term healthcare services and assist community-based nonprofit providers in improving the delivery of critical services.

The budget also aims to simplify the state contracting process by standardizing financial reporting for private providers, streamlining payment processes, and creating a new, multi-agency centralized contracting unit for several agencies.

Some proposals in the budget would increase the governor’s ability to better manage the budget in deficit situations. They include increasing his rescission authority from 5% of the overall budget to 10%; and extending it to municipal aid.

Spending Cap, Borrowing

Despite the fact that he made significant reductions in the current services budget, taking out $1.8 billion across several areas (including aid to hospitals, Medicaid coverage, and by ending the Charter Oak Health Plan) the governor’s budget proposal still increases current state spending by more than 9% over the next two years.

What’s more, the governor proposes to modify the state’s constitutional spending cap and increase borrowing in order to accommodate his initiatives. This approach, however, fails to avoid addressing the state’s burdensome long-term liabilities, especially for healthcare and state employee retiree benefits, that must be dealt with.  

The governor’s message is the first step in a long budget-approval process. Over the next few months, the legislature and administration will negotiate the content of the final budget before bringing it to a vote later in the session.