Budget Session Takes Small Step in the Right Direction

Issues & Policies

State lawmakers approved spending cuts and modest business tax reductions yesterday in a special legislative budget session called to address Connecticut’s ongoing fiscal issues.

Acting largely on party lines, the Democrat-controlled legislature cut $350 million in spending for the current fiscal year and about $210 million from next year’s budget.


While state lawmakers closed the current year shortfall, the budget deficit is projected to reach $1.87 billion in FY 2019.


That action will close the budget shortfall for this fiscal year. The legislature’s nonpartisan Office of Fiscal Analysis is forecasting budget deficits of $552 million for 2016-17, $1.72 billion in 2017-18, and $1.87 billion the following year.

CBIA president and CEO Joe Brennan called the legislation a “small step in the right direction” toward mitigating the fallout from the two-year budget passed earlier this year and resolving the state’s long-term fiscal issues.

“While there were some modest tax reductions and progress on the spending side, it certainly wasn’t everything the business community was looking for,” he said.

“We do wish more was done on the structural reforms that the state really needs so we can deal with the budget deficits coming up next year and years after.”

The special session followed weeks of discussions between Governor Dannel Malloy and Democrat and Republican legislative leaders.

Bipartisan process

While those discussions didn’t result in bipartisan agreement—no Republican lawmaker voted for yesterday’s bill—Brennan noted the importance of having both parties involved in the process.

“Even though the Republicans didn’t support the bill in the end, they played a big role in this,” Brennan said.

“We give the Governor credit for making these discussions bipartisan as it helped move the ball down the field. He took the lead on this, to try and make Connecticut more business friendly because of everything that happened over the last year.”

CBIA president and CEO Joe Brennan

We do wish more was done on the structural reforms that the state needs.

In a statement released yesterday after the special session, Governor Malloy said that while the legislature's action made important changes to the tax code and provided savings in future fiscal years, more needed to be done.

"The legislation passed tonight is not perfect, but it helps make progress for the State of Connecticut this fiscal year and beyond," he said.

"We no doubt have more to do in the General Assembly session ahead [in 2016], but this is a positive step to improve the state's business climate and deliver long-term predictability that will allow our families and businesses to thrive."

Business tax cuts

Yesterday's special session modified the controversial unitary tax included in the revised budget that passed in June, a move that drew negative reaction from companies across the state.

Lawmakers also offset restrictions on the net operating losses companies can claim as a deduction against taxes, restrictions that threatened much-needed investments in research and development.

The legislature also restored about $30 million in funding to hospitals, diminishing some of the impact of earlier cuts.

About $135 million in general fund savings for this fiscal year will come from diverting or sweeping other funds, including the Special Transportation Fund, public university and college reserve accounts, and the Biomedical Research Trust Fund.

"Some of what was done yesterday results in one-time savings, moving things from one fund to another" Brennan said.

"That's not going to solve our problems going forward and lawmakers must keep that in mind in the next legislative session in 2016."

Structural reforms

Brennan said it was critical that lawmakers focus on structural reforms and keeping state government spending within taxpayer means.

He cited a number of proposals, including delivering essential state services and programs at a lower cost, criminal justice reforms, and aligning state employee compensation and benefits with the private sector.

"We're still very bullish on Connecticut's future," Brennan said. "We just need to make smarter policy choices and what happened yesterday shows that we're starting to change our approach.

"It's a challenge and tough choices need to be made, but fiscal stability and predictability are critical to rebuilding the business confidence necessary for investment, economic growth, and job creation."

The General Assembly also was unable yesterday to push through a resolution seeking a 2016 referendum vote on a state constitutional amendment protecting transportation funding.

While the Senate unanimously approved the resolution, it passed the House of Representatives on a 100-40 vote, 14 votes short of the super majority needed to put the question before the state's voters next November.

Proponents of the constitutional lockbox—designed to prevent legislative raids on dedicated transportation funds—saw it as a critical step toward gaining public and legislative support for investments in the state's transportation infrastructure.


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