GOP leaders balk at Malloy’s bottom line, new taxing powers for towns

Republican state legislative leaders charged Tuesday that Gov. Dannel P. Malloy’s first budget proposal, which technically boosts spending 2.4 percent each of the next two fiscal years, isn’t frugal enough and piles $85 million in new municipal taxes on top of an already too-high $1.5 billion state tax package.

But the administration fired back that the spending increase is more cosmetic than real, and that the bulk of the spending growth is designed to leverage greater federal resources, and to begin reducing hefty state debt levels.

“If this is what they are picking on, based on the totality of what’s out there, we’re in pretty good shape,” said Roy Occhiogrosso, Malloy’s senior adviser.

After being briefed by the Malloy administration, the House and Senate minority leaders, Rep. Lawrence F. Cafero of Norwalk and Sen. John McKinney of Fairfield, said that despite talk of budget cuts, Malloy’s budget actually increases spending by $454 million in the first year.

“I don’t think that was the expectation when we started this process,” Cafero said.

“I think our fellow colleagues and our constituents are going to kind of have a little sticker shock when they realize, ‘Wait a minute, we are spending more next year, yet you’ve been talking about all these cuts and sacrifices,’ ” McKinney said.

But Office of Policy and Management Secretary Benjamin Barnes, Malloy’s budget director, said $325 million of that new spending is tied to expanding the state’s provider tax system for nursing homes as well as adding a similar one for Connecticut’s hospitals. More importantly, he noted, the provider tax allows state government to leverage $477 million in new federal aid, as well as spend the original $325 million on the health care industries that are taxed in the first place.

Barnes added that the biennial budget is intended to generate a $653 million surplus over two years. About $120 million of that surplus would begin the process of converting state finances to follow Generally Accepted Accounting Principles, Barnes said. Adoption of GAAP, which rules out many of the budget balancing gimmicks used in recent years, has been supported by GOP leadership.

The rest of the surplus would be designated either to reduce bonded debt, bolster severely under-funded pension accounts, or to rebuild state government’s depleted emergency reserve, commonly known as the Rainy Day Fund.

Cafero and McKinney also said Malloy’s budget anticipates 150 jobs being eliminated, arguing that is too modest of a reduction

But Occhiogrosso said that imposing deeper spending cuts could not be done without severely harming the state’s social service and health care programs for needy households — a step Malloy pledged to avoid during last fall’s campaign.

The governor has said he would consider reducing aid to cities and towns to help balance the budget, and offered several proposals either to expand municipal taxing authority, or to grant them a share of state tax revenue streams.

The proposals include:

  • Ending the exemption from property taxes for boats and planes, which would be subjected to a uniform tax rate in all communities of 20 mills.
  • Ending a similar exemption for certain large commercial vehicles, which would be taxed at the general mill rate in their respective communities.
  • Increasing the state hotel tax from 12 percent to 15 percent. Revenue raised by 1 percentage point of that tax would be sent to cities and towns.
  • Creating a new statewide, 3 percent surcharge on car rentals. Two-thirds of the revenue would go to the state and one-third to the towns.
  • Restoring statewide cabaret tax, a levy on music performance venues. All revenue from this tax would go to the municipalities.
  • Adding 0.1 percentage point for retail sales to the 6.25 percent sales tax rate Malloy proposed. Revenue from this surcharge would go to the municipalities in which the sales took place.
  • And boosting the municipal real estate conveyance tax rate in most communities from 0.25 to 0.50. The upper rate already exists, but only in Connecticut’s 18 poorest cities and towns.

Barnes confirmed that one of municipal aid reduction Malloy will propose Wednesday involves eliminating payments to towns to offset local taxes lost because of manufacturing machinery exemptions. This grant program distributed $57.3 million to communities this year.

Representatives of municipalities praised the budget proposal.

“The governor has long endorsed expanding the revenue options for towns,”  said James Finley, executive director of the Connecticut Conference of Municipalities. “We appreciate that he has followed through on that promise. Towns need additional sources of revenue and this is a welcome announcement, but we are waiting to see what these mean in the context of municipal aid.”

Bart Russell, the leader of the Council of Small Towns, also welcomes the “meaningful change” to help towns that find themselves in tough budget situations.

“Connecticut is the most dependent state on property taxes. To pay for everything — from local schools to police and fire to road and bridges — is difficult. We feel like property taxes have been maxed out. As a consequence, we have been looking for an alternative to shoulder the burden,” he said. “We are hoping that we are provided with some alternative revenue. And we would prefer not to have those traded off with dollar for dollar cuts to municipal aid.”

GOP legislative leaders said the proposed changes don’t really amount to taxpayer relief.

“It’s all coming out of the same checkbook, the same wallet, the same pocket,” Cafero said, adding Malloy also has proposed $1.5 billion in new state taxes for next fiscal year. “And the cumulative effect of all this, we believe, will be devastating.”

Michael Riley, president of the Motor Transport Association of Connecticut, reacted to the the proposed elimination of the tax exemption for commercial vehicles by saying the “thousands and thousands” of truckers in Connecticut will be even further disadvantaged.

“This is really a tough blow. You just knocked the wind out of me,” he said after being told the proposal, putting the phone down and announcing the news to his office. “Oh, no.”

Riley said only about half the states tax commercial vehicles and the reason the state launched this tax exemption was an effort incentivize companies to upgrade their fleet to newer and safer vehicles.

“When you put a tax on movable property, sales will move to where it isn’t taxed,” he said. “We can deal with a 2 cent increase on diesel gas, but this exemption is critical to our truck sales business. I know truck dealers have had a very difficult time selling anything over the last couple of years. Now the likelihood they will sell anything is not good.”

McKinney added that “there is no promise of any real taxpayer relief,” noting that this additional revenue doesn’t come with any mandate that local governments freeze or reduce property taxes. “My guess is you won’t see that.”

Mark Pazniokas contributed to this story.