Truth – House Dems Sales Tax Fairer Than Onerous Property Tax Hike
This scene played out again last week when Connecticut's House Democrats released their biennial budget proposal. They acknowledged two very distinct truths that, until Thursday, our leaders have determined Connecticut taxpayers couldn't handle:
First, much of Connecticut's estimated $5 billion budget deficit over the next two years is attributed to prior benefit obligations. These contractual sins of the past cannot be wiped away. Therefore, although the General Assembly can and must reduce spending for the present and the future, the legacy obligations make cutting our way out of the deficit in the short term virtually impossible.
Second, Connecticut residents will see a tax increase this session in one form or another.
The House Democrats did what others before them had not. They presented these truths in a direct and transparent way. The critics of their proposal are banking that Connecticut residents are better served by being shielded from the truth.
This is made clear by looking at the other two budget proposals that were previously presented. Gov. Dannel P. Malloy's budget proposal contained some very important reforms and focused rightfully on keeping Hartford out of bankruptcy while providing new tools for urban center growth and development. Malloy's budget also proposed moving $400 million in teachers' retirement debts from the state tax rolls to the towns and cities. Shifting this burden to towns and cities would prove disastrous to local communities that would have to raise their property taxes. The municipalities had no say in creating the teachers' pension and would have no ability to control the growth of the obligation in the future. Even if you are for this approach, you cannot say a $400 million property tax increase is not a tax increase.
Cost saving measures back to top
Months after the governor released his proposal, Senate Republicans offered their solutions. The Republican budget again presented many important cost-saving measures that should be included in any final budget deal. One of the most notable reforms was in the area of binding arbitration, where the proposal limited the consideration of a town's fund balance when determining binding arbitration awards. This provision alone would allow towns to maintain healthy reserves for bonding and necessary capital projects without fear of the money being diverted into increased salaries and benefits. In addition to the positive reforms, however, the GOP plan also reduced education funding in some communities and eliminated property tax relief efforts that were passed by the legislature just two years ago. While the proposal presented a bold path for reform in some areas, without modification it assured property tax increases for some municipalities, and did not guarantee keeping the state's capitol city out of bankruptcy.
The plan presented by House Democrats captured two of the tremendously important concepts first recognized by the governor and Senate Republicans. It addressed the health of our urban centers while implementing important cost savings and collective bargaining reforms. The big addition in the House Democrat plan is, instead of increasing taxes through an already overstressed property tax system, it placed the increases on the sales tax where, as a state, we have capacity. In other words, Connecticut's property tax currently is uncompetitive with our surrounding states while our sales tax rate is competitive relative to our neighbors. In fact any increase that keeps the sales tax below 7 percent would maintain Connecticut's position of having a sales tax lower than every other state in the region except one.
I am not suggesting the House Democrat budget should be passed as presented. There will be no perfect product in such an imperfect set of circumstances. The best budget will be one that all parties work collectively to develop as municipal leaders across Connecticut continue to work with legislators in a bipartisan fashion. The Democrats' plan, however, at the very least, should be hailed as one that told Connecticut taxpayers the truth.
The question remains: Can we handle it?
Joe DeLong is executive director of the Connecticut Conference of Municipalities.