New Democratic Budget Plan Includes Mandate Relief, Sales Tax Hike

New Democratic Budget Plan Includes Mandate Relief, Sales Tax Hike

Hartford Courant, August 23, 2017

Democratic legislators released a new budget proposal Wednesday that would increase the sales tax to 6.85 percent, hike the cigarette tax, and encourage greater regional cooperation among the state's 169 cities and towns in order to save money.

Lawmakers hope the proposal will end a political stalemate that has left the state without a budget since the new fiscal year began on July 1. But both Republicans and Gov. Dannel P. Malloy are still highly skeptical of increased taxes.

“This is an honest, balanced proposal that reflects the many and diverse priorities of the families and businesses of our state, and with continued good-faith negotiations by all parties, will help us cross the finish line in the next few weeks,” said House Speaker Joe Aresimowicz of Berlin.

The proposed sales tax hike would generate an additional $663 million over two years as part of an overall plan that would increase revenues by $2 billion over two years. Malloy, however, said he is “not in favor’’ of hiking the sales tax to that level as the state faces a two-year, $3.5 billion deficit.

“At first blush, this budget is not something the governor could support in its current form,” said Kelly Donnelly, Malloy’s chief spokeswoman. “With that said, it is well understood that they intend to negotiate many of the specific suggestions in this document. We look forward to a budget passing the General Assembly that is both balanced and responsible.”

While it was never mentioned in a summary sent to legislators and reporters, the Democratic proposal would also increase the cigarette tax to generate nearly $80 million over two years, plus an additional $7.2 million in sales taxes due to the increased price of cigarettes. The cigarette tax would increase by 45 cents per pack on Oct. 1.

Other proposed revenue from tax increases include $34 million over two years for placing the sales tax on previously tax-free, nonprescription drugs and $22 million over two years on smokeless tobacco. The proposal also calls for nearly $100 million over two years for increased fees, licenses and permits at the Department of Motor Vehicles.

As direct state aid to municipalities decreases in tough fiscal times, legislators are searching for new ways to help cities and towns balance their local budgets. The House Democratic plan addresses those needs, including allowing municipalities to impose an additional 1 percent sales tax on food and drink at local restaurants, bars, and other outlets. The restaurant tax would generate an estimated $61 million in the first year and $63.5 million in the second year for the municipalities, according to the Democratic plan.

While Malloy and legislators are asking the towns to accept the reality that they will not receive as much money as in the past, lawmakers are also saying that towns must be given the tools to generate money — either through direct taxation at restaurants or through cost-savings such as regionalism.

Local government budget reform back to top

Republicans hailed Democratic ideas for local government budget reform as a long-term method of reducing unfunded mandates that Republicans have criticized for years. Further details are expected to be released with the full budget, but the summary provides the broad strokes. It calls for councils of government and municipalities to work together to propose plans for regionalizing services. The proposed budget also seeks to “facilitates regionalism through changes to collective bargaining statutes’’ and “consolidates local assessor offices to achieve economies of scale’’ in order to save money.

Although raising revenue is always a last resort, it is a necessary step to ensure that we continue to have a great education system that attracts so many young families to our state,’’ said House Majority leader Matt Ritter, a Democrat from Hartford. “Our goal is not to simply protect our school systems, it’s to make them even stronger in every town across the state. I look forward to further discussions with the governor and all four caucuses on this proposal.’’

The plan does not include Malloy’s politically unpopular proposal to allow communities to tax hospitals.

But it does contain several ideas that Republicans have long pushed, including a cap on bonding for long-term capital projects that do not support the public education system or stimulate economic growth. The budget proposal would also require the legislature to vote on all state employee union contracts and modify the state’s public financing program for elections, two other measures long supported by the GOP.

While the sales tax hike may prove to be a tough sell with the governor, Republican lawmakers and even some conservative Democrats, other parts of the plan reflect ideas that have broad consensus, such as a surcharge on passenger vehicle registration to create a dedicated funding stream for the state's 109 state parks and phasing out income taxes on all Social Security recipients, beginning in 2020.

As the budget crisis heads toward the third month of the new fiscal year, Republicans are still balking at tax increases. The ongoing crisis has now lasted longer than the epic 1991 battle when the state income tax was created on August 22.

With some lawmakers on vacation in August, no votes are expected until the week of Sept. 11.

“I still believe strongly that we need to reach a budget that creates stability, protects core services, and protects residents from damaging tax increases, and hope to continue conversations to achieve this goal now that House Democrats have shared their ideas,’’ said Senate Republican leader Len Fasano of North Haven.

House Republican Leader Themis Klarides predicted that the plan would not pass in the Senate, which is evenly divided among Democrats and Republicans at 18-18.

“These tax hikes will slam the middle class and further erode our quality of life in Connecticut,’’ Klarides said. “The Democrats want to continue down the path that has led us to the precipice of fiscal ruin.’’

Democrats are also pitching a 25-cent surcharge on all Uber and Lyft rides, with the money going directly into the fund that pays for Connecticut's transportation projects.

The fee, modeled after a similar surcharge assessed in Massachusetts and other states, is expected to bring in $800,000 annually.

The detailed Democratic budget, which was shared with legislative leaders from all four caucuses and the governor, was long on concepts but short on specifics. It would direct state and local government agencies to consolidate offices and create “one-stop” government centers. It also would reduce layers of management in state government, although how that would be done was not detailed. And it seeks to promote regionalism through changes in collective bargaining.

Implicit in the proposal is the notion that government at all levels must grow leaner and that includes the General Assembly itself: under the plan, the number of legislative committees would shrink from 26 to 18, beginning in 2019.

But the plan also includes some potentially costly new initiatives. It would establish a program to help homeowners dealing with crumbling foundations, and put in place a structure to avoid future foundation problems. Thousands of homes in eastern Connecticut are slowly collapsing because a mineral called pyrrhotite caused their concrete foundations to swell and crack.

The Democrats also want to compensate firefighters who have job-related cancers and police officers who suffer from post-traumatic stress disorder. Both of those ideas carry costs that could potentially add strain to municipal budgets and they have failed to win legislative passage in the past.

One of the biggest challenges facing cities and towns has been the uncertainty of the amount of state aid.

Under his executive order, Malloy has proposed huge cuts in local aid that would include eliminating all educational cost-sharing money for 85 towns, including West Hartford, Southington, Rocky Hill, Newtown, and North Haven. The state’s richest communities, including Greenwich, New Canaan, and Darien, would be “zeroed out,’’ but so would a series of communities that are not traditionally viewed as the state’s wealthiest.

By contrast, the House Democratic plan has more than 20 towns “zeroed out,’’ including Old Saybrook and Westbrook.