Lawmakers put Malloy’s car tax repeal plan in neutral

The legislature’s tax-writing panel put Gov. Dannel P. Malloy’s proposed car tax repeal on the shelf Friday, but leaders insisted the concept would be revisited before the full legislature adjourns on June 5. 

And while Malloy didn’t get his way when it came to the car tax, the Democratic-controlled Finance, Revenue and Bonding Committee embraced most of his other proposals, endorsing more than $110 million in new taxes next year, a controversial energy auction, and a break for tax delinquents in a vote along party lines.

Technically, the Finance, Revenue and Bonding Committee adopted the governor’s plan to end the municipal property tax on motor vehicles — with one huge change.

While the governor wanted to end the tax in the 2014-15 fiscal year, the measure the finance panel adopted postpones that until 2018.

The principal objection legislators raised to the governor’s proposal is that it does nothing to replace more than $600 million in property tax revenue communities collect annually from motor vehicle levies.

Members of the finance and Planning & Development committees have been talking with administration officials and a government efficiency panel created by House Speaker J. Brendan Sharkey to see if a compromise can be reached this session.

“They’re doing great work and trying to find an answer to a very, very complex issue,” said Sen. John Fonfara, D-Hartford, co-chairman of the committee. 

“The discussion is not finished,” added Rep. Patricia Widlitz, D-Guilford, the committee’s other co-chair. “There is no conclusion.”

Sharkey said afterward that he expects his study panel will recommend an implementation plan that is “a little bit more aggressive” than repeal in 2018, though it also likely won’t start over the next year.

Any successful compromise, he added, likely needs to reimburse communities for at least a portion of the tax revenue they would use, and also likely would have to phase the repeal out over several years.

Anticipating that lawmakers might not be ready to sign off on the car tax repeal right now, Gian-Carl Casa, spokesman for the governor’s budget office, said Thursday that “The entire rationale behind this proposal was to begin a conversation about how we can provide middle and working class families with some measure of tax relief. We’re glad that conversation has started, and hope we can reach some kind of resolution with the General Assembly this session.”

The governor had much better luck with the finance committee Friday when it came to his other proposals.

Lawmakers will extend tax increases that otherwise would have expired in the next fiscal year — extensions that Malloy argued do not violate his pledge not to raise taxes in the new budget:

  • A 20 percent surcharge on the corporation tax would be extended through the next biennial budget, raising an extra $44 million in 2013-14 and $74 million in 2014-15.
  • A cap on an insurance premium tax credit within the corporation tax system would be maintained in the new budget, raising an extra $27 million in each fiscal year.

A third tax extension Malloy sought, involving a levy on power plants, was not on Friday’s agenda. That’s because the finance committee voted earlier this week to recommend using additional borrowing and restructuring of debt payments to replace the $70 million in annual revenue the generation tax provides.

Connecticut’s poorest working families took a hit Friday. The committee backed the governor’s plan to reduce the new state Earned Income Tax Credit from 30 to 25 percent of the Federal EITC.

That would cost working poor families about $21 million on their state income tax refunds next April. The plan adopted Friday would restore half of that cut in 2015, bumping the rate back upward to 27.5 percent.

The committee also scrapped a proposal from the governor to restore the sales tax exemption on clothing items costing less than $50.

The finance committee plan also would raise an extra $20 million in each of the next two years by applying the full sales tax rate of 6.35 percent to digital downloads and other data processing service sales.

Rep. Vincent Candelora, R-North Branford, a veteran member of the finance panel, said too many of the committees decisions seem designed to be “stop-gap” measures to balance the budget until after the November 2014 state elections so majority Democrats don’t have to consider further tax hikes or spending cuts.

“We need to hold the line on taxes,” he said. “We need to try to make Connecticut more competitive.”

But Widlitz said “we are in a very difficult budget year and it is not a perfect system.”

Committee leaders have said all session they would try hard to avoid further increasing taxes, given that a record-setting $1.5 billion in taxes was raised two years ago to close a huge deficit.

“We’ve done our work and we hope that it is a reasonable product,” Widlitz said.

Two years ago Malloy and the legislature were hailed by municipal leaders by breaking ground and granting cities and towns a share of revenue from two state taxes: sales and real estate conveyance.

But the committee adopted the governor’s proposal Friday to suspend that revenue-sharing, canceling $92 million in projected assistance next year and $98 million in 2014-15.

The panel also endorsed several initiatives to raise one-time revenues to prop up the next state budget, ideas that minority Republicans blasted as gimmicks when Malloy unveiled them back in February.

These include:

  • Raising $35 million by waiving tax penalties on delinquents on nearly all state taxes provided they pay between mid-September and mid-November of 2013.
  • Sweeping $30 milion from the Connecticut Resources Recovery Authority.
  • Auctioning off the rights to serve 800,000 residential and business electricity customers currently served by Connecticut Light & Power Co. or United Illuminating. But while Malloy planned to raise $80 million from this auction, the committee plan assumes $100 million would be raised.
  • Raiding $14 million from the state’s stem cell and biomedical research trust funds in each of the next two fiscal years. The stem cell funding would be replaced with borrowed dollars in each of those budget years.
  • Raiding $77 million from the Special Transportation Fund next fiscal year and another $3 million from the fund in 2015. The governor’s budget, which recommended taking those resources, proposed $88 million less for transportation than the level analysts estimate is needed to maintain current services.

That last raid drew a sharp rebuke from Sen. Toni Boucher of Wilton, ranking GOP senator on the transportation committee.

Boucher noted the legislature also raided transportation funds in the current budget, but is nonetheless proceeding this July with one of the largest fuel tax hikes in state history.

The increase, which boosts a wholesale tax on gasoline and other fuels from 7 to 8.1 percent, was approved back in 2005.

But given the raids both implemented and proposed, the state is spending less on its transportation system even as it demands more resources from motorists — many of whom assume their fuel tax dollars are being spent on roads.

“All of these areas tend to exacerbate or add to the state’s anti-business feeling,” Boucher said.