Lawmakers Engage On Fiscal Crisis

Originally posted on CT News Junkie by Christine Stuart on 5/8/17

WINDSOR, CT — Spending cuts will be difficult, but increasing income taxes on the wealthy hasn’t returned the amount of money the state anticipated, Sen. Cathy Osten told a group of about 15 people Sunday.

Osten, who co-chairs the Appropriations Committee, outlined Connecticut’s current budget crisis in about 20 minutes for a mostly female group, which is a newly formed chapter of Action Together Connecticut.

“I don’t sugarcoat things,” Osten said.

She said a lot of the revenue options have been tried over the last few years. She said the recent half-percent income tax increase on people making over $500,000 a year didn’t net Connecticut “one dime.”

There’s also the fact that “there is very, very little will on either the D side or the R side to raise income or sales taxes,” Osten said.

But the two-year state budget lawmakers are currently debating has a $5.1 billion hole. The reality is even more devastating though, because there are certain parts of the budget lawmakers can’t touch, such as pensions.

“The teachers retirements and state employee retirements both have been putting a lot of pressure on the rest of the budget and directly relate to the deficits we’ve had over the last several years,” Osten said.

She said when the Democratic budget comes out that simply cuts and doesn’t increase much in the way of revenues, there may be a bigger appetite for things such as legalizing recreational marijuana or broadening the sales tax base.

“The next budget that comes out will be more austere than the first budget,” Osten told the newly formed progressive group.

She said the governor has said that in order to stay in budget negotiations they have to come up with a budget that only spends $17.5 billion per year. The state this year planned on spending $19.8 billion.

Derek Thomas, a fiscal policy fellow at Connecticut Voices for Children, told the group that broadening the sales tax base to include services would bring in $1.5 billion at the current rate of 6.35 percent. He said lowering that to 5.5 percent would bring in about $730 million annually.

Kristen Nobel Keegan of Manchester said she worries what that would mean for women running ]side businesses out of their homes. Another woman said the services that would be taxed are “discretionary,” so she doesn’t care if there’s an increase.

Keegan gave as an example a woman doing manicures in her basement.

Thomas said it’s hard to say whether taxing services would hurt because the current budget proposal from Democratic Gov. Dannel P. Malloy eliminates the property tax credit and reduces a tax credit for the working poor. He said people would have to weigh the cost and the benefit of the various proposals.

But broadening the sales tax base and increasing the income tax is not something a lot of lawmakers are talking about.

The Finance, Revenue and Bonding Committee approved a tax package that increased marriage licenses from $30 to $50, reduced the earned income tax credit for the working poor, allowed the Department of Revenue Services to waive penalties and interest payments for tax delinquents to increase collections by $60 million, and eliminated the film production tax credit for $4 million.

However, that tax package is not balanced with a spending proposal and was approved before the latest revenue numbers, which showed the state would receive about $1.5 billion less over the next two years than it initially estimated.

Malloy has also repeatedly said he doesn’t believe “this should be a revenue-driven solution.” He said the legislature should spend more time trying to figure out how to live within its means.

It’s a remark he has repeated often even though this year was the first time income tax revenues declined from the previous year since 2009. That’s despite the two largest tax increases in the state’s history.

The sentiment from several who attended Sunday’s meeting was that Connecticut seems to be stuck in a rut.

Keegan wanted to know when the state would pull out of the current situation.

“You have to convince people there’s light at the end of the tunnel,” Keegan said.

Osten said that’s a revenue discussion. She said every year we’re not seeing an increase in revenue.

“We need to grow the base,” Osten said.

But that economic recovery doesn’t seem to be happening quick enough for Connecticut.

Marcia Van Wagner, a Moody’s vice president and senior credit officer, said on April 5 that Connecticut’s fixed costs command roughly 30 percent of the state’s $18.9 billion in revenues, which is the highest percentage in all 50 states.

Connecticut is losing about 575 residents per week to other states, according to 2016 U.S. Census data. Between July 1, 2015, and July 1, 2016, Connecticut’s total resident population fell by 8,278 people.

Economist Don Klepper-Smith of DataCore Partners in New Haven has said that more tax increases won’t produce the expected revenue. “We are now starting to cannibalize our state and local tax base, and that further tax hikes will be counterproductive in the long run,” Klepper-Smith said.

Department of Revenue Services Commission Kevin Sullivan has pointed out that income tax receipts in Massachusetts and New York were also down this year. He said it looks as if investors and wealthy residents are waiting to see what happens with tax reform at the federal level before realizing any earnings that could be taxed.

Meanwhile, residents are trying to figure out where they can help in offering their perspective on the state’s current fiscal situation.

Sunday’s budget discussion at Get Baked! In Windsor was one of six or seven budget discussions around the state organized by Action Together Connecticut, a new coalition “upholding progressive American values and resisting harmful and intolerant policies.”

Maureen Goulet, who organized Sunday’s event, said it’s important for people to understand the state and local issues and how they effect our town.

“We need to take action where we can,” Goulet said.

She said the budget situation is really difficult and her chapter will likely regroup soon to decide how to take action.

The group is one of many that was inspired to organize after the election of Republican President Donald Trump.