Budget Revisions Must Mark a Change in Direction

Issues & Policies

Lawmakers ended a tumultuous 2015 General Assembly session an hour after midnight Monday, rolling back about $178 million in business tax hikes from the state budget.

The House of Representatives approved the revised budget on a 78-65 vote, following an earlier 19-17 vote in the Senate.

The budget revisions were unprecedented, with lawmakers responding to widespread outcry from businesses and residents after narrowly passing a $40 billion, two-year budget that included $1.5 billion in tax hikes on June 3.

“The budget debate, particularly over the last month, served an important purpose,” said CBIA president and CEO Joe Brennan. “It put a spotlight on Connecticut’s economy and the ability of companies to compete in regional, national, and global markets.

“As originally adopted by the General Assembly, the budget hurt companies’ ability to compete. By reopening the budget and making modifications to tax increases, lawmakers have begun undoing some of the damage.”

Shift in direction

Brennan said the special budget session marked an important shift in direction, adding that policymakers “can’t stop now.”

“We thank Governor Malloy and the General Assembly for responding to the concerns voiced by businesses and their work forces,” he said.

“And Republican lawmakers and those Democrats who voted against the original budget also deserve credit because their concerns gave added weight to the call to find a better way.

“They sent a message that Connecticut’s economic competitiveness is important and cannot be ignored.”

The revised budget addressed several major concerns, keeping taxes on data processing and web services at 1% (the original budget hiked them to 3%) while delaying implementation of the unitary reporting requirement within the corporation tax until next year.

National attention

Governor Dannel Malloy proposed both those measures nine days after the June 3 vote, as reaction against the budget spread, drawing national attention.

He also proposed lowering the annual cap on tax credits from 70% to 55%, instead of the 50% cap called for in the budget. Lawmakers did not act on that proposal.
Malloy had also said he was open to discussion about changing the budget’s action on net loss carryforwards (NOLs), which help vulnerable start-up companies. It remains unclear how NOLs will be treated.

Brennan noted that even in its revised state, the two-year budget still increased taxes by about $1.3 billion, including higher levies on employers, and reductions in the value of tax credits and operating loss provisions.

“Make no mistake about it, taken as a whole, this budget does not help Connecticut’s overall competitiveness,” he said.

“Policymakers now must aggressively follow up on the special session with structural reforms that more efficiently deliver services, reduce long-term costs, and stabilize our economy to benefit everyone who lives in Connecticut.”

Economic competitiveness

During the special budget session, lawmakers also approved a new economic competitiveness commission to help develop policies promoting economic growth.

“Although there is always a certain amount of skepticism when it comes to creating new legislative commissions,” Brennan said, “We hope that having an additional voice speaking to the critical importance of keeping Connecticut competitive will drive better policy choices.”

More than five years after the end of the recession, Connecticut’s economy continues to struggle, growing an anemic 0.6% in 2014 as the gap between the state and regional and national economies widened.

And the state’s 6% unemployment rate is the highest in New England, having recovered just 82% of all jobs lost during the economic downturn.

Connecticut did jump 13 places–from 42nd to 33rd–in CNBC’s 2015 America’s Top States for Business rankings, driven largely by the state’s skilled, educated workforce, education system, quality of life, and technology base.

However, those strengths were offset by the state’s high business costs, poor transportation infrastructure, and high cost of living.

“We have said throughout this legislative session that the debate shouldn’t be about business taxes versus human services, that we can be a society that takes care of its citizens but also nurtures a healthy, growing economy,” Brennan said.

“Connecticut companies of all sizes and types–and the people and families who work for them–want our state to be a better place to live, work, learn, and raise a family.”


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