Derby – Gov. Dannel P. Malloy said Thursday he would use the $506 million projected surplus to beef up the state’s fiscal reserves, pay down pension obligations and provide modest tax relief.
Malloy, a first-term Democrat facing re-election this year, chose a blue-collar, Naugatuck Valley community to announce that if legislators approve his plan, the state would be sending out checks of $55 to single filers and $110 to couples.
The rebates, which would consume $155 million of the surplus, would be available to single filers earning less than $200,000 and couples earning less than $400,000. Technically, the administration is considering the checks to be refunds of gasoline and sales taxes.
“This is the best way to get this money to middle-class families,” Malloy said.
The governor balanced a desire for election-year tax relief against his promise to exercise fiscal discipline. He would use $100 million to reduce unfunded pension obligations and add $250 million to the “rainy day fund,” nearly doubling the state’s cash reserves.
Because all of these initiatives are one-time expenditures, they would not expand the roughly $1 billion deficit that nonpartisan analysts project for the first new budget after the November elections.
He called his proposal, to be presented Wednesday on the opening day of the General Assembly’s session, “a plan that takes a reasonable path toward shared recovery.”
House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, reacted with a mix of criticism and muted praise.
“Anytime we are talking about giving tax revenues back to the people who earned them it is a good thing,’’ Cafero said. “But this proposed tax rebate is perhaps the least creative option. I’m glad to see that Governor Malloy stuck to the Republican principle of not using this so-called ‘surplus’ money to blow even greater holes in future budgets.’’
But Zak Sanders, a spokesman for the Connecticut Republican Party, called the plan cheap electioneering: “Dan Malloy thinks that he can buy the votes of Connecticut’s over-taxed families for $55.”
In drafting his plan, Malloy is trying to confront fiscal and political tensions: He is eager to provide some immediate, election-year relief to voters, while conceding a need to be prudent, given projections of a deficit after the election and the state’s considerable long-term debt.
The legislature’s nonpartisan analysts say the state could face as much as a $1.1 billion shortfall in the fiscal year beginning July 1, 2015, but Malloy said he would manage the state’s finances to ensure those projections do not become reality.
“We won’t have deficits. We don’t have deficits,” Malloy said.
A recent joint report from nonpartisan analysts and the administration upgraded revenue projections enough to shave the post-election deficit to just under $940 million — though another official forecast isn’t expected until May.
In fact, Malloy expressed optimism that economic recovery would accelerate and allow for more tax cuts in his next term, if re-elected.
“I am calling for tax cuts — and future tax cuts,” Malloy said.
Comptroller Kevin Lembo, a Democrat whose office occasionally faces conflict with the administration over fiscal policy, praised Malloy’s plan.
“This proposal recognizes two of Connecticut’s top financial needs – retiring a piece of our long-term debt and replenishing our Rainy Day Fund,” Lembo said in statement. “I also applaud Governor Malloy for moving to increase the maximum size of our Rainy Day Fund – from 10 percent to 15 percent [of the state’s budget] – as I have long supported.”
House Speaker J. Brendan Sharkey, D-Hamden, had to slightly backpedal from previous statements about the surplus after the governor’s announcement.
Sharkey praised the contributions to the pension fund and budget reserve. But last week, when House Republicans proposed using more than $230 million of the projected surplus for one-time sales and business tax relief, the speaker urged caution.
“We shouldn’t be making promises and throwing out short-term feel good ideas until we have a firmer grasp of our financial outlook going forward,” he said. New data on state tax revenues won’t be available until mid-April.
When it came to the Democratic governor’s proposal to use $155 million of the surplus for sales and gas tax relief, though, Sharkey said, “a sales and gasoline tax refund at this time will also provide some immediate relief for people without impacting future budgets.”
Tom Foley, the 2010 GOP nominee who is seeking a rematch this fall, officially announced his candidacy Wednesday, promising to cut the sales tax by half a percentage point in 2017, after two years of freezing discretionary spending.
Anticipating Malloy’s announcement, House Republicans proposed $247 million in consumer and business tax cuts last week.
The last governor to propose an election-year rebate was Republican John G. Rowland, who persuaded the legislature to approve $50 for singles and $100 for couples in 1998 and again in 1999. Cafero said a difference was that the state was flush with cash and its reserve fund was full.
Malloy’s proposal has a twist: By treating the rebates as refunds of gasoline and sales taxes assumed to have been paid by every taxpayer, the tax relief is not subject to federal income taxes.
A true rebate is considered taxable income, while a tax refund is not.