While state legislators remained divided Wednesday over how to tackle the deficit in Connecticut’s budget, sources said a controversial tax designed to lower consumers’ electric bills now is being considered as a means to bail out state government.

“I do believe there is a renewed interest” in a windfall profits tax on electricity generators, said Rep. Vickie O. Nardello, D-Prospect, who has been pushing lawmakers for four years to target what she contends are astronomical utility earnings that stem from industry deregulation. “Sometimes it takes a while for concepts to be fully understood.”

A fiscal crisis, and more specifically a need for more budget revenue, doesn’t hurt either, Nardello conceded.

Although the bill, which was approved by the Energy and Technology Committee by a single vote, would channel all tax proceeds into lowering monthly electric bills, sources said the some members of the legislature’s budget-writing panels and top leadership have talked about amending the measure to keep the revenue in the state’s coffers.

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The Energy and Technology Committee’s windfall profits tax bill is getting a closer look by the legislature

Nardello, who led House Speaker Christopher G. Donovan’s Electric Rate Relief Panel earlier this year, and who also co-chairs the energy committee, estimates the windfall tax would yield between $300 million and $400 million annually.

And though she isn’t involved in budget negotiations, Nardello predicted that if legislators have to choose between diverting rate-relief funds to balance state finances or imposing deep cuts to social services, health care, and education, many would choose the former.

The tax could plug a major gap in state government’s budget, provided the estimated yield is correct.

Projected deficits for this fiscal year and next total about $1.25 billion, according to the legislature’s nonpartisan Office of Fiscal Analysis.

Connecticut also continues to face some of the highest electric rates in the nation. A January report from the Office of Legislative Research found Connecticut’s average rate for the first nine months of 2009 stood at 17.5 cents per kilowatt hour, nearly 8 cents above the national average and second only to Hawaii. And over the past five years, Connecticut’s average rate has grown from 34 percent above the national average to 74 percent above.

Nardello’s bill would tax major generators, primarily nuclear and coal-powered plants, that earn profits in excess of 20 percent of their generating costs, claiming 50 percent of the profits that exceed this threshold level.

Better Choices for CT, a coalition of labor, religious, nonprofit social service and other advocacy groups, endorsed a windfall profits tax and use of those funds to support the state budget at a press conference last week, estimating it would be worth $400 million annually.

“During a recession as deep as this one, demand for public services dramatically escalates,” said Maggie Adair, deputy director of the Connecticut Association for Human Services and a member of the coalition. “Connecticut is the wealthiest state in the nation but it is among the most unequal. We have the capacity to protect and invest in our people and our communities.”

But the windfall tax concept wasn’t universally embraced at the Capitol, even before legislators began talk of using those potential taxes to bail out the state rather than Connecticut homeowners and businesses.

“The numbers that are being thrown around are based on false assumptions,” said Rep. Sean J. Williams of Watertown, ranking House Republican on the energy committee, who said more expensive staffing requirements and business regulations in Connecticut weaken the profits of generators located here.

“I don’t want to give people false hope,” Williams said, adding that voters wouldn’t appreciate state government crafting a rate-relief plan for consumers – even a flawed one – and then keeping the projected relief for itself. “Then we’re going to say to them, ‘Sorry, you have to keep suffering because we can’t find any other way to close the budget deficit?’”

The measure now heads to the tax-writing Finance, Revenue and Bonding Committee, but its co-chairmen, Rep. Cameron C. Staples, D-New Haven, and Sen. Eileen M. Daily, D-Westbrook, declined to speculate Wednesday about how it might be received.

“It’s hard to say,” Staples. “I just don’t know.”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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