“I see these meetings as an opportunity for you to educate me so I can become an ambassador for you within the legislature and the House Democratic Caucus on issues that are of concern to you,” Rep. Jason Rojas (D-East Hartford) told CBIA’s Taxation and Finance Committee Feb. 24 in Hartford.

Rojas, House chair of the legislature’s Finance Committee, was joined by fellow committee members Rep. Chris Davis (R-Ellington), House ranking member, and Rep. Vincent Candelora (R- North Branford), deputy House minority leader.

Connecticut Finance Committee with CBIA Tax Committee
Finance Committee co-chair Rep. Jason Rojas, Day Pitney's Charles Lenore, Rep. Chris Davis, Rep. Vincent Candelora, and CBIA's Louise DiCocco.

The Finance Committee is holding public hearings on various provisions of Gov. Malloy’s proposed state budget.

All three legislators voiced a commitment to working with businesses and CBIA throughout the budget process to ensure positive economic outcomes.

“The business and industry community here in Connecticut is something that state government should be partnering with and not challenging on a regular basis,” said Davis.

“That’s something that I try to bring to the table as the ranking member of the Finance Committee.

“We cannot have our constituents working here in Connecticut unless we have employers to employ them. Our constituents are dependent on you to give them jobs and provide them with the opportunity to raise their families. And they depend on us to create the environment for you to be able to do that.”

CBIA's Taxation and Finance Committee, made up of tax experts from member companies, helps formulate CBIA’s tax-related policy positions and educate elected officials on the real-world impact of tax policy coming out of Hartford.

“One of the things that I think first and foremost that’s important for the Finance Committee to do is make sure that we have a dialogue and transparency,” said Candelora.

“I think two years ago, the committee really lost its way, and we saw a lot of taxes being raised without public hearings.

“Moving forward, when we have these tough decisions to make, it has to be open with a dialogue with the business community so we know exactly what the cause and effect is going to be.”

Tax Increases Coming?

Tax committee members voiced several concerns during the meeting, chief among them the possibility that the legislature would respond to the governor’s proposed budget—which avoids broad-based tax increases—with a budget that relies on generating new revenue through tax hikes and/or expanding the universe of taxable products and services.

Rojas observed that the Democrats in the legislature are pretty evenly split between those who understand the negative economic impact of higher taxes and those who are more concerned about the effect of deep spending cuts.

There is significant recognition that we can’t just tax our way out of this.
— State Rep. Jason Rojas
“There are certainly folks who just believe there is more money out there to be had...but I’m comfortable saying that there is significant recognition that we can’t just tax our way out of this and a recognition that more taxes are going to hurt the larger economy and make it more difficult to actually get revenue for public programs,” he said.

The good news is that the legislators do not anticipate additional limitations on business tax credits as a way of solving the budget deficit.

“In any conversation I’ve been in, that’s not on the table,” said Rojas.

Davis acknowledged that the governor’s budget could result in a “significant shift to the property tax side of things,” an issue that has received a “tremendous amount of pushback.”

None of the lawmakers, however, were keen on allowing towns to levy their own taxes beyond the property tax, a suggestion that’s been floated in recent budget discussions.

“I’ve generally been against giving towns that authority, because I think from a competitive standpoint for businesses, a city or town could inadvertently ruin an industry because they just happen to increase a tax,” said Candelora.

“I’m generally opposed to local options,” said Rojas. “We’re just too small a state to even think about having a small town here doing something different on tax policy and go two miles down the road and there’s something different.”

Davis agreed. “I don’t want to see the situation where we have a 6.35% sales tax in the state and we have a 5% sales tax in the city of Hartford.”

Pension Obligations

The governor’s budget proposal calls for $700 million in savings from state employee concessions in fiscal 2018 and $810 million the following year.

Although the legislature is not involved in the current negotiations with state employee unions, the panelists agreed that the state must get concessions.

“On my side of the aisle, there aren’t a lot of folks who are public about what they want to see out of public employees, but I’ve been public in saying that there have to be concessions, but I don’t know that there will be $700 million worth of concessions,” said Rojas. “But there have to be concessions. I don’t see that there’s any other way.”

In 2011, we passed a budget that had labor concessions that never materialized.
— State Rep. Chris Davis
What Davis doesn’t want to see is a budget that builds in savings from state employee concessions before there’s a labor concessions deal in place.

“In 2011, we passed a budget that had labor concessions that never materialized,” he recalled.

“If we continue down that path, we’ll never get out of this hole, because that will be a continuous process where we’ll have to catch up all the time.

“I want us to have a true and real budget when we get out of session in June.”

Candelora would like to see significant structural changes in the way state employee benefits are determined.

“We have been strapped with a [benefits] contract that’s been in place for 20 years,” he noted.

“I think this union negotiation needs to be short-term, unless we can show five years out or 10 years out how this thing balances, and I’m concerned that’s not going to happen.

“There’s a bill right now in the Labor Committee that’s hotly controversial to make the retirement benefits and healthcare the subject of statute as opposed to collective bargaining. That’s the way Rhode Island was able to get out of their crisis.

“The Republican leadership put that bill in...and obviously it’s getting huge pushback from the unions, but I think we need to have that conversation, because collective bargaining isn’t working right now for the state of Connecticut.”

Debt Concerns

One concern that surfaced at the meeting was the impact of the state’s unfunded liabilities and growing level of bonded debt on future tax policy.

Candelora explained that that a lot of the state’s operational expenses have been shifted into bonding in order to close budget deficits, resulting in the level of allocated projects that aren’t funded increasing from $3 billion in 2011 to over $7 billion currently.

“So now with the continuing deficits, we are going to start seeing pressure on our capital reserves,” he said.

“It’s not any longer just about taxes; it certainly is about borrowing and our capacity to borrow money.”

Davis, acknowledging the state’s heavy dependence on the financial services industry for revenue, especially for our income tax stream, was cautiously optimistic.

We’re quickly reaching our limit on how much we can bond as a state.
— State Rep. Jason Rojas
“As the stock market is climbing now...and will continue to climb, hopefully, we will have a situation where Connecticut will start getting greater revenue from those revenue streams than we have in the last few years, and instead of taking that, budgeting it, putting it into appropriate funds and spending that money as quickly as we can get it in...we’ll be able to put some of that money into the budget reserve fund” and begin to put it toward unfunded liabilities and debt service.

Rojas pointed out that most of the state’s bonded debt comes from school building projects and advocated a more cost-conscious approach—one that emphasizes functionality and utility in design and construction versus aesthetics.

“We need to put a bit more restraint” on school construction, he argued.

“There is little incentive for local districts to value-engineer their schools in a way that will save money.

“We’re quickly reaching our limit on how much we can bond as a state.”

Let’s Talk

CBIA Tax Committee Chair Charles Lenore, a partner at Day Pitney LLP, encouraged lawmakers attending the meeting to call on members to better understand the economic rationale behind provisions of the state tax code—such as tax credits and exemptions—that are misleadingly referred to as loopholes by some.

“A lot of the things that are in the tax code were put in place to help various Connecticut businesses and industries compete,” he said.

“We are willing at any time to sit down and talk about various provisions and provide the rationale that was behind them when they were enacted and what they allow to happen in Connecticut that might not otherwise happen in Connecticut.

“When people understand the rationale, it no longer looks like a loophole; it actually looks like it’s providing an economic development benefit to a particular industry.”

Rojas also extended an invitation, urging meeting attendees to talk to their legislators about business-critical issues.

“It’s important that if you have a concern about a bill, let your legislators know about it,” he said.

“That email, that phone call—I read my own emails and I take my own phone calls, and I think most legislators do—those individual messages do matter. Some people think they don’t, but they really do.”


For more information about state tax policy, contact CBIA’s Louise DiCocco (203.589.6515) | @LouiseDiCocco

For more information about the budget and state spending, contact CBIA’s Pete Gioia (860.244.1945) | @CTEconomist