Forum on 2010 budget views grim landscape

Connecticut needs a half-billion-dollar answer to its fiscal woes – and state Comptroller Nancy S. Wyman (left) told a crowded room on Tuesday there are only so many options.

“People really don’t want to hear it, but the fact is we’re going to have to cut spending. We’re maybe going to do some more borrowing and we’re probably going to have to look at structural revenue increases,” Wyman said.

Wyman at forum

Nancy Wyman at budget forum

There is a $513 million shortfall in the budget for the fiscal year that ends June 30- Wyman, the governor’s office and state legislators agree on that.

But with the start of the legislative session just a week away, there is no consensus on what to do about it.

Gov. M. Jodi Rell will release her budget proposal next week, and if the deficit reduction plan she proposed in November is any guide it will include significant cuts to spending and town aid.

That proposal was rejected by the legislature’s Democratic majority, who instead passed a number of smaller budget cuts and a bill delaying a reduction in the estate tax. Rell vetoed both measures.

Raising taxes will likely be on the table again for Democrats; they have already begun eyeing real estate conveyance taxes.

House Speaker Christopher G. Donovan told town elected officials during a forum earlier this month that the conveyance tax on home sales scheduled to expire in five months will likely be extended.

“I see the conveyance tax as a necessary revenue,” he said. “But no tax is permanent.”

The state’s two primary revenue sources – income and sales taxes – have produced far less than expected, Wyman told the audience Tuesday. A loss of 88,000 jobs since the recession began has resulted in the state losing an estimated $212 million in income tax revenue.

There are worse problems ahead, Wyman warned: The pool of federal stimulus money with which the state tried to balance the current budget is drying up, and the deficit for the fiscal year beginning July 1, 2011 is projected at $3 billion.

Twenty percent of the state’s current budget comes from federal funds, a jump of five percent from the state’s previous budget, said Jamey Bell, executive director of Connecticut Voices for Children, which organized Tuesday’s budget forum.

And when it comes to closing this gap, Bell said the state should avoid making any cuts to human services and education – which accounts for almost half the budget – before reevaluating the tax code.

These are “not luxuries or things we can necessarily do without,” she said.

A way to increase revenue for the state, she suggested, would be to changes taxes on businesses – including rate increases, letting tax credits expire and impose an annual cap on tax credits.

“We need to not give so many tax breaks,” she said during an interview. “You want to increase the revenue? Well, look at individuals and businesses not paying their fair share. You have to look at the entire picture.”

Business taxes account for 7 percent of the current budget, reports the Office of Fiscal Analysis. Bell said Connecticut businesses have the second best tax situation in the country, behind only North Carolina.

Connecticut’s largest business group says the state may have the best tax rates but disagrees that the state has one of the best business environments.

“Across the board we have very high costs,” said Connecticut Business and Industry Association Senior Vice President Joseph Brennan during an interview. “We pay more for health care, energy, and labor. … If you raise taxes you are going to have fewer companies who stay or move here.”

A survey released yesterday shows these high costs caused nearly half of eastern Connecticut businesses to downsize since last March.

Brennan said there is no doubt the state’s come a long way from the 14 percent tax rate for businesses in the 1990s.

“We just don’t want to go backwards,” he said. “Suggesting raising taxes during one of the worst recessions is a bad idea.”

Brennan says taxes should be raised only as a last resort and the state should work to be more efficient.

“If a dollar is going to a needy child, we don’t want to cut that dollar, we want to change how that dollar gets to the child,” he said. “They need to be more aggressive in making state money more efficient.”