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Lawmakers Won't Take Tax Hikes Off Table

Lawmakers Won't Take Tax Hikes Off Table
Hartford Business Journal, December 19, 2016
By Matt Pilon

Headed into a two-year budget cycle in which the legislature faces projected annual deficits approaching $1.5 billion, businesses are probably wondering whether to expect major tax hikes akin to those enacted in 2011 and 2015.

Recent messaging from Gov. Dannel P. Malloy and his fellow Democratic leaders, who head into the 2017 legislative session with the slimmest political margin since the 1980s, has sought to assuage concerns. But no leading lawmakers have ruled out new taxes entirely.

"I would say tax increases are not my first choice," newly appointed House Speaker Joseph Aresimowicz (D-Berlin), said this month. But Aresimowicz, who inherited the House's top position from the retiring Brendan Sharkey, said the state's fiscal challenge is large.

"I don't like to take things off the table," Aresimowicz said, adding that he expects balancing the budget to get much of lawmakers' attention in the coming session, which starts Jan. 4.

Malloy, who is expected to unveil his budget proposal in February, recently called the state's fiscal challenge "gigantic," created in part by employee-pension promises made by past administrations.

But the Democratic governor said during a recent press conference that he won't be "leading with the expectation that we're going to raise a lot of additional dollars," and that he wasn't yet prepared to be "trapped into an answer" on new taxes until he had more data.

"There's no doubt there will be cuts and consolidations in this budget, there have to be," Malloy said. "I think there are tax changes that I'd like to see that are beneficial to the business climate of the state."

The governor's office declined to elaborate on those potential tax changes for this story.

Joseph Brennan, CEO of the Connecticut Business and Industry Association (CBIA), said he's not privy to the governor's plan, but hopes it doesn't rely on tax hikes.

"As hard as it's going to be to solve our budget problem, if we try to do it with tax increases, it's only going to make the situation worse by driving more wealth, more businesses and more jobs out of the state," Brennan said.

He said businesses were pleased with the 2016 legislative session and he hopes 2017 can build on that.

"I know job numbers have been troubling over the past few months," Brennan said, referring to the nearly 14,000 jobs the state shed in October and September. "But I'm hearing anecdotally from companies that they're hiring and starting to expand. I think we can create some positive momentum for Connecticut."

One positive Malloy has been touting this month is a long-sought-after deal with state-employee unions that his administration said will help Connecticut avoid multi-billion-dollar spikes in pension payments anticipated next decade.

"We now have a much more dependable, sustainable and predictable way forward … than we've had since 1983," Malloy said of the deal.

But the pension deal, which pushes billions of dollars in annual obligations more than a decade into the future to prevent one-time payments that would wreak havoc on the budget, is "a long-term play for stability" that isn't expected to be key to solving deficits over the next two years.

State agencies have been preparing cost-cutting proposals that include salary cuts, facility closures and a variety of other measures.

Meanwhile, newly empowered Republicans — who now have equal representation in the Senate and a narrow 79-72 minority in the House — are relaunching their push for the legislature to enact strict caps on both spending and bonding.

"The chances are better just on sheer numbers," said House Minority Leader Themis Klarides (R-Derby) of pushing through some of the GOP's biggest priorities. "This is the most members we've had since the Reagan landslide of '84."

Senate Republican Leader Len Fasano (R-North Haven), who along with Democrat Leader Sen. Martin Looney will preside over the evenly split chamber, said he sees plenty of room for budget cuts to close the deficit, including tightening rules on quasi-public agency managerial contracts, consolidating overlapping agencies and programs, and cutting "pet projects."

"We can't give $1 million to play tennis in New Haven. We can't give $1 million for an arts festival," Fasano said. "We're in austere times."

How would Senate Republicans respond to a budget that included tax increases?

"I would say that I would probably be against a budget that had tax increases as a solution," Fasano said. "There are a lot of cuts. Can you get to $1.3 [billion]? I don't know, I've got to figure out where we sit."

Republicans will also call for union concessions, though Fasano acknowledges that unions would have to voluntarily agree to open any negotiations before 2022.


Malloy pledges to protect biz toolbox back to top

While the outcome of the coming session is anyone's guess, Malloy told MetroHartford Alliance members last week that he plans to protect the "toolbox" of programs and incentives that the state has launched during his tenure to help large and small businesses.

Malloy referred specifically to R&D tax credits, the Small Business Express program and the Manufacturing Innovation Fund.

The governor also spoke of large, custom deals his administration has brokered with Pratt & Whitney and other large companies.

"Go back six years. How many of you thought UTC and Pratt would not only still be in the state but have made a long-term commitment?" Malloy said.

One major question in the coming session is whether Hartford Mayor Luke Bronin will be able to convince the legislature to send significantly more aid to the cash-strapped Capital City.

Though the first-term mayor hasn't put a number on the ask, he has been speaking and taking questions from sometimes skeptical audiences in surrounding communities, where he has been selling the need for long-term structural reform at the state level to ensure Hartford's future.

During his remarks at the MetroHartford Alliance breakfast, Malloy, who previously employed Bronin as his chief legal counsel, didn't pledge to save Hartford at all costs.

And he noted that the state already provides Hartford with approximately $250 million a year, and has made major investments in public transportation and housing in the city.

But he expressed confidence in Hartford's future.

"I think the future of Hartford is pretty good on a long-term basis," Malloy said. "On a short-term basis, the great mayor, Luke Bronin, has some very real challenges and I commend him for publicly discussing those challenges."

Aresimowicz, whose second in command, State Rep. Matt Ritter, is a member of the Hartford delegation, said he aims to help the city avoid a possible bankruptcy, calling it "the last option in my mind."

"We don't want Hartford to struggle and stop the much-needed progress," he said.

Fasano, however, was cool to the thought of a big ask from Hartford in a tough budget year, saying he'd need a detailed look at the city's books.

He also thinks the city should sell the XL Center, which is leased by the Capital Region Development Authority, a quasi-public entity hoping to convince the legislature to spend $250 million on a significant overhaul of the aging venue.

"If you want to hold onto that building, don't come to me for more money," Fasano said.

As for Malloy's take on the XL Center, it's unclear if his budget proposal will include a $250 million investment this session.

"I can't imagine a Capital City, or … the state of Connecticut not having a facility like that," he said.

But he said the business community will need to tell already inundated legislators that the venue is important.