Table Set for Special Budget Session

Issues & Policies

Office-Workers-Brainstorming_112015With Thanksgiving right around the corner, Gov. Malloy and legislative Democrats and Republicans have set the table for an anticipated special budget session by pitching ways to plug the widening fiscal gap and set Connecticut on better fiscal ground for the future.
Budget negotiating teams have made their proposals to address the current fiscal year’s gap, and while differing in many respects, have found common ground in several areas—without additional tax increases, but with lower state spending, and some business tax relief.
If an agreement can be reached, the legislature likely would go into special session before the 2016 session of the General Assembly that begins on Feb. 3—and perhaps as soon as early December.
“By linking fiscal stability with economic growth, Gov. Malloy set the negotiations on the right path,” said CBIA president and CEO Joe Brennan.
“He recognizes that recurring budget deficits and tax increases have had a chilling effect on investment and job growth in the state.
“He has also taken the positive and important step of making budget talks bipartisan, seeking out the best ideas from both sides of the aisle.”
More red ink
The bipartisan budget talks started on Nov. 4, with the governor and legislative leaders agreeing on an estimated state budget gap for this fiscal year of $350 million to $370 million.
But the other shoe dropped when the nonpartisan Office of Fiscal Analysis reported that the state will face projected deficits of $508 million in fiscal year 2017, $1.3 billion in FY 2018, $1.2 billion in FY 2019, and $1.4 billion in FY 2020.
Policymakers continue to struggle with the double-whammy of weaker-than-expected income tax receipts weaker, and growth estimates that were rosier than reality.
The current biennial budget, for example, counts on 5.2% personal income growth in the state, but the actual figure is 3.2%.
Connecticut’s economy is growing, with about 24,000 jobs created over the last year, but not fast enough to keep up with state spending plans and revenue expectations.
The latest report from the state Department of Labor, out this week, showed the second straight month of job losses.
Gov. Malloy’s proposals
Gov. Malloy outlined a broad proposal to state commissioners in late October to meet short- and long-term fiscal realities and put Connecticut’s economy on a more stable, sustainable path.
Subsequently he recommended making more than $330 million in numerous and wide-ranging state budget cuts that would impact higher education, the judicial system, social services, municipalities, hospitals, and more.
Among other things, the governor proposes to:

  • Close a prison, two courthouses, and the state police barracks in Bethany
  • Privatize some state services; eliminating or reducing state funding for several social services and workforce development proposals
  • Eliminate six state commissions
  • Cut the state workforce by 500, through attrition

Business tax relief
With an eye to growing the economy, Gov. Malloy also proposed moderating the unitary combined reporting system for corporate taxes scheduled for January, restoring the 70% limit on business tax credits, including the R&D credit, and providing a 15-day exemption from the personal income tax for employees coming into the state for business development (training) activities.
Under the governor’s plan, the unitary combined reporting would be capped at the amount of any company’s additional tax owed due to the change to the unitary system.
He also wants to change the tax on net operating losses to allow firms with significant prior-year losses to trade in 50% of those losses for an immediate exemption from the annual limit under the law, provided they continue to pay a minimum tax of $2.5 million.
GOP proposals
Legislative Republicans’ plan includes certain $372 million in spending cuts, an amount targeted to cover the current year’s gap, and restore budget cuts already made to hospitals and some social services programs.
GOP lawmakers also proposed long-term structural changes to help avoid future budget deficits. Republican ideas include:

  • Saving nearly $95 million by diverting excess funding from the Municipal Revenue Sharing Account
  • Authorizing the governor to hold back $93 million that’s currently designated to cover potential agency overspending
  • Curtailing state employee raises, controlling overtime, and not filling 39 new positions

The Republicans are also seeking several changes to state employee compensation and benefits that would bring them more in line with the private sector, and save the state more than $100 million per year.
These include requiring pension contributions for all non-hazardous duty workers, increasing prescription drug co-payments, and introducing a hybrid retirement plan that includes a 401(k) for new employees.
Democrats’ proposals
Senate Democrats late this week presented a budget plan that would trim $350 million in this fiscal year, and $209 million FY 2017, in large part by encouraging senior state employees to retire, although details were not yet available.
Previously, their Democratic colleagues in the House said they would support long-term negotiated savings from state employees, but stopped short of recommending an early retirement incentive plan, arguing that such plans add to the financial stress on the pension system.
But their Senate counterparts joined them in calling for restoring previous cuts to hospitals, along with delaying pay raises for state managers, controlling state employee overtime, and providing some business tax relief.
While the House Democratic plan also would cut $350 million from the current budget, most of their savings—$105.3 million—would be achieved through wide-ranging cuts to numerous agencies and programs, including education, social services, job training, the Judicial Branch, public safety, and corrections.
They also joined the GOP in calling for creating a state office to oversee overtime administration.
“It’s essential that the final budget package take bold steps to restructure and reform state government in a way that allows for the efficient and cost-effective delivery of state services without driving wealth and investment out of the state,” Brennan said.
For more information about state spending, email or call CBIA’s Louise DiCocco (860 244.1169).
For more information about state taxes, email or call CBIA’s Bonnie Stewart (860.244.1925) | @CBIAbonnie


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