Governor Dannel Malloy released a budget deficit mitigation plan this week that would raise the sales tax and several other taxes, cut municipal aid, and trim social service programs.

Malloy said his plan would generate more than $300 million in annual savings this fiscal year—enough to cover a $208 million deficit and restore funds to the Medicaid Savings Program.

Gov. Malloy addresses state budget deficit
"Universally objectionable options." A sales tax hike is among Governor Malloy's budget deficit recommendations.

He offered lawmakers different options for closing the deficit, including raising the current 6.35% sales tax to 6.5%, or as high as 6.9%.

"I understand that these options will be almost universally objectionable, and that there is little appetite among you or your members for making such adjustments to your budget," Malloy wrote in a Dec. 13 letter to legislative leaders.

"In fact, I agree these changes are difficult and that in better economic times, with a balanced budget, none of us would put them on the table for consideration.

"However, I have a clear statutory obligation to provide you with a plan to mitigate the deficit."

$200 Million Deficit

Lawmakers in October passed a two-year budget for the fiscal year that began July 1—with no input from Malloy's office. The budget had no major tax increases.

But just four months into the new fiscal year, the budget is already more than $200 million in the red, according to the comptroller's office.

Malloy's proposal calls for raising the sales tax as high as 6.9%. This would generate $319 million in additional revenue over two years.

He would increase the restaurant tax from 6.5% to 7% for an additional $40 million over two years.

These changes are difficult and that in better economic times, with a balanced budget, none of us would put them on the table.
— Gov. Malloy
Malloy also proposed increasing the real estate conveyance tax with the 0.75% rate going to 1%, and the 1.25% rate to 2%. This would increase revenue by $102 million.

He proposes hiking the hotel tax from 15% to 17%, providing $22 million in extra revenue, and repealing the sales tax exemption on nonprescription drugs, which would generate $22 million in revenue over the biennium.

He also wants to further hike the cigarette tax, which was just increased by 45 cents a pack, by another 25 cents to $4.60 a pack, triple the cigar tax from 50 cents to $1.50, and slap a 75% excise tax on e-cigarettes.

He would reduce municipal funding by $50 million a year in both years, eliminate Medicaid payments for graduate medical education ($15 million in savings over two years), reduce enhanced Medicaid reimbursement for primary care providers ($4.7 million over two years), and reduce the monthly allowance given to residents of long-term care facilities from $60 to $50 ($1.5 million over two years).

For more information contact CBIA's Louise DiCocco (203.589.6515) | @LouiseDiCocco