Despite State’s Red Ink, Calls for More Taxes, Spending, Mandates

Issues & Policies

Governor Dannel Malloy delivered his final State of the State address Feb. 7, calling for new workplace mandates, including a minimum wage hike, expanding paid sick leave, and adopting paid family and medical leave.
Malloy’s address to a joint session of the General Assembly followed the release two days earlier of his revised $20.7 billion budget plan for the 2018-2019 fiscal year—a plan with significant implications for businesses.
Connecticut budget deficitsHis budget proposals include extending the surcharge on corporations, a new employer tax to pay state Department of Labor salaries and benefits, changes to the unitary tax, increases in hotel, restaurant, and real estate taxes, and cancelling a planned reduction in hospital taxes.
Malloy’s budget revisions also address recent federal tax changes, including a provision decoupling state and federal laws related to the depreciated value of capital investments.
The governor’s budget plan, which would raise an additional $190 million in revenue, increases the gas tax, adds a fee on new tire sales, eliminates the sales tax exemption for non-prescription medicines, and cuts municipal aid.
Many of the proposals in Malloy’s address to the General Assembly were also reflected in a far-reaching policy agenda for the 2018 session released Feb. 6 by legislative Democrats.
That agenda features a renewed push for paid family and medical leave, minimum wage increases, expanded healthcare mandates, changes to environmental regulations, and pay equity.
House and Senate Democrats also proposed free community college tuition for Connecticut residents, “unprecedented investment” in the state’s technical high schools, overhauling the workforce development pipeline, and implementing highway tolls.

Make Job Creation, Growth Top Priorities

CBIA marked the beginning of the 2018 legislative session this week by releasing its policy agenda, urging state lawmakers to make job creation and economic growth their top priorities.
CBIA president and CEO Joe Brennan noted the state faces a $409 million budget deficit across this fiscal year and next, ballooning to $2.2 billion in fiscal 2020 and $2.9 billion the following year.
“Fiscal stability is absolutely key to driving job and economic growth,” Brennan said.

CBIA's Joe Brennan

The status quo is not sufficient—we need bold reforms that will signal Connecticut is going to compete fiercely in the global economy.

"Those significant fiscal challenges are holding back our economic potential.
"The status quo is not sufficient—state lawmakers must adopt bold reforms that will send a clear signal Connecticut is going to compete fiercely in the global economy and become an economic leader."
Brennan said that while many of the policy issues raised by lawmakers this week were important, businesses—small and large—expect government to stabilize finances and stimulate the economy, despite the obstacles of election-year politics.

What Voters Want

While Connecticut added 7,700 jobs (0.5%) in 2017, a stark change after losing 200 the previous year, the state has recovered just 76% of jobs lost during the 2008-2010 recession—one of just a handful of states yet to reach full recovery.
The state's economy expanded 3.9% in the third quarter of last year, eighth fastest in the country, after shrinking 4.4% in the first quarter and posting no growth in 2016.
"The business community is starting to grow our economy at a higher rate than we have seen in years, and we can't slow down the process," Brennan said.
"When you look at Connecticut voter opinion polls, jobs and the economy are consistently ranked at the top of the list of priorities.

CBIA's Joe Brennan

Businesses—small and large—expect government to stabilize finances and stimulate the economy, despite the obstacles of election-year politics.

"We have to continue focusing on those things that are at the top of the list, making Connecticut more competitive, so we can create more and better jobs here."
Brennan said he considers Connecticut employers among the best in the world.
"We pay very good wages, we pay very good benefits, we have safe workplaces," he said.
"Employers here care about their people, they care about their communities, they care about the state of Connecticut."

Malloy's Final Address

Feb. 7 marked Malloy's final State of the State address, as he is not running for re-election after two terms in office.
Voters will go to the polls in November to decide all General Assembly seats and statewide offices, including the election of a new governor.
Malloy's fiscal 2019 budget revisions featured the following measures:

  • A new tax on pass-through entities, which are primarily small and family-owned businesses, offset by a matching tax credit. This is designed to mitigate changes in the new federal limit on state income tax deductions.
  • Maintaining a surcharge on corporations that was due to expire in 2019. That surcharge dropped from 20% to 10% this year, with Malloy now proposing an 8% charge in fiscal 2019.
  • Decoupling state and federal tax laws related to the depreciated value of capital investments. This change effectively changes depreciation schedules, with particular impact on manufacturers (see sections 11 and 12 of SB 11).
  • A new tax on employers—0.05% on all taxable wages— that will be used solely to cover state labor department wages and benefits.
  • Limiting the $2.5 million cap on unitary (or combined) tax reporting to manufacturers only.
  • Repealing the 7/7 brownfields program that creates incentives to clean up contaminated sites and reuse them while creating local jobs.
  • Increasing the hotel occupancy tax from 15% to 17%.
  • A special 7% tax on restaurant sales.
  • Canceling a planned 2020 cut in the hospital provider tax from $900 million to $384 million.
  • A seven cents per gallon increase in the gas tax.
  • Boosting real estate conveyance taxes to 0.85% and 1.4%.
  • Adding a $3 fee on new tire sales.
  • Eliminating the sales tax on non-prescription medicine.

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