State lawmakers this week passed a bipartisan plan to close a projected $365 million state budget deficit for this fiscal year--and in the process took some positive first steps in addressing the steeper challenges facing Connecticut’s economic and fiscal health.
Among other things, the deficit mitigation package includes some spending cuts, several one-time budget transfers and adjustments, and revenue adjustments.
The final package also preserves the state’s 70% cap on corporate tax credits, which an earlier proposal would have reduced. While legislators tightened the use of certain film tax credits, they also avoided expanding the tax on electric generators in the state.
Connecticut’s business community thanks the administration and legislative leadership for recognizing that reducing the credits for investments that companies have already committed to would have been very harmful to the state’s struggling economy.
Especially now it’s critically important that state tax policy be as stable and predictable as possible so businesses can confidently plan for increased investments and job creation.
“Tax credits help our economy grow,” said John Rathgeber, CBIA president and CEO. “They are earned only when businesses invest in pro-growth, job-creating activities in Connecticut, like research and development, fixed capital purchases, and expansion of data processing services.”
And because credits result only from certain activities and investments in Connecticut, they serve as catalysts to help produce millions of dollars in state tax revenue every year.
In light of the weak November jobs report—only 300 jobs gained and 11,100 people exiting the workforce—lawmakers should do anything possible to recharge business confidence and fuel a renewal of job growth and business investment.
While there are no easy choices for solving the state’s fiscal problem, an expanding economy would make the task easier. Recognizing the value of positive tax policy is a solid step to rebuilding the kind of business confidence we need.
The $253 million in spending cuts and revenue modifications in the bipartisan deficit mitigation package add to the net $108 million in cuts Governor Malloy had made earlier through his executive authority, leaving about $4 million of the deficit uncovered.
And while the state comptroller says the actual deficit is $415 million, this year’s gap is much smaller than what policymakers will face when they begin to craft a new two-year state budget starting in January.
Estimates are that the state is heading toward a $2 billion deficit in the next two fiscal years (FY 2014 and 2015).
That’s especially daunting after the record high tax increases included in the current biennial budget, and the use of one-time fixes rather than reforms in the mitigation package.
When lawmakers return on January 9 for the 2013 session of the legislature, they will have to fully come to grips with the fact that state spending has surpassed taxpayers’ ability to support it.
Ben Barnes, secretary of the Office of Policy and Management, said this fall that “policy changes” must be made in how the state operates and budgets.
In fact, there are many positive reforms the state can make to change—and improve--how it does business that will allow policymakers to reduce state spending.
This January, CBIA will be offering a report highlighting ways the state can improve its services and reduce its costs--a win-win for Connecticut--and hosting a tax forum for legislators later in the month to share how tax credits are earned and used.
For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or firstname.lastname@example.org.