Tucked among the many pages of a bill implementing Governor Dannel Malloy's budget revision recommendations is a new payroll tax on state businesses.

The tax included in SB 6 is equivalent to .05% of the taxable wages of each business.

The sole reason for this new tax?

So the state Department of Labor—whose staff is the highest-paid of any state labor department in the nation—can meet its payroll.

"Steep declines in federal funding, coupled with our salary rates and fringe benefit rates (highest in the country) make it impossible to sustain mission critical operations," the department stated in its 2018 legislative proposal.

"The [department] proposes an administrative surcharge to augment the federal funding it receives from [the U.S. Department of Labor] to run its programs."

Northeast State Labor Department Salaries

StateAllocated Staff YearsFederal Funding for StaffFunding per Staff Year
New York1,233$127,260,706$103,212
New Jersey921.9$92,980,256$100,857
Rhode Island84$8,223,673$97,901
New Hampshire123.8$9,756,158$78,806

Source: U.S. Department of Labor

Unsustainable Expenses

CBIA's Eric Gjede told the legislature's Appropriations Committee March 28 the department acknowledges its fringe benefits costs have reached nearly 100% of the cost of employee salaries.

"This is not sustainable for the state, as is evidenced by the department's admission that the cost of Connecticut's Labor Department personnel exceeds every other state," Gjede said.

The solution to every problem the state faces should not be another tax on businesses, he added.

If the Labor Department is successful, what's to stop every other state agency from imposing a surcharge to fund their own personnel costs?
Instead, the state should act like a business and trim expenses.

"When the cost of doing business in the state rises, which it often does, businesses are forced to make difficult choices," he said.

"The most difficult of these choices involve workforce reductions. Businesses facing financial difficulties can't simply impose a surcharge on their product or service to pay for their personnel, as the Labor Department seeks to do in SB 6."

'Undermines Competitiveness'

Gjede acknowledged Connecticut's state government will continue to face financial troubles in the future, but said new revenue streams—even ones dedicated to a specific cause—cannot be the only solution.

"That only undermines our business community's ability to compete regionally, nationally, and globally," Gjede said.

"If the Labor Department is successful in this endeavor, what's to stop every other state agency from imposing a surcharge to fund their own personnel costs?"

Gjede urged the department to "find an alternative to more unsustainable spending that simply patches the financial problem rather than fixing it."

Those alternatives include cutting back or privatizing services. He urged the committee to reject the section of SB 6 that contains this unfair payroll tax.

For more information, contact CBIA's Eric Gjede (860.480.1784) | @egjede