Gov. Dannel P. Malloy summed up the meaning of his new budget proposal Wednesday in one word: jobs.

But while the new governor once again declared that Connecticut is “open for business,” reactions were mixed as to whether his initiatives would enhance or hinder the state’s already sluggish economy.

The state’s chief business lobby, the Connecticut Business and Industry Association, said the question is somewhat premature.

“The governor has built a very good, overall foundation,” John R. Rathgeber, the CBIA’s president and chief executive officer, said. “He certainly understands the importance of putting our economy in motion. But we believe that should be the starting point because there’s more work to do.”

Among the important first steps taken in Malloy’s $19.74 billion proposal for next fiscal year are more than $1.7 billion in proposed cuts to the current services budget, including $1 billion that must come from worker concessions and other personnel savings.

“The governor certainly hit on a number of very important points,” Rathgeber said, adding that proposals to expand tax credits for job creation and transportation infrastructure investments also are important.

The chief tasks now for the governor and legislature, Rathgeber added, are to “consider other ideas to downsize state government” and the $1.5 billion in new taxes Malloy is seeking in the coming fiscal year.

Sen. Gary LeBeau, D-East Hartford, longtime co-chairman of the legislature’s Commerce Committee, praised Malloy for expanding tax incentives for job creation but said he’s still assessing the overall tax hike, which ranks as one of the largest in state history.

Perhaps the biggest accomplishment of the Malloy budget plan, LeBeau added, is that it was constructed without the billions of dollars in fiscal gimmicks and other one-time revenues used to prop up spending in the last two state budgets. “The governor settled all of the big question marks in a fair way,” the East Hartford lawmaker added. “I think that is very important.”

But Senate Minority Leader John McKinney, R-Fairfield, said despite smart proposals to reduce state employee compensation costs and expand job growth incentives, Malloy’s budget taken as a whole — and particularly given the tax hikes proposed — would not help the state’s economy.

“We’re still going in the wrong direction,” McKinney said. “I still think there is much more room for us to reduce our spending.”

The Democratic governor, who inherited a budget with a deficit built into the coming fiscal year that ranges from $3.2 billion to $3.7 billion, asked for $1.5 billion in new state taxes in 2011-12.

Besides new higher income tax rates on middle- and upper-income households, the governor also wants to:

  • Broaden the sales tax base by eliminating dozens of exemptions and raise the existing 6 percent rate to 6.35 percent on retail items and to 6.25 percent on other items.
  • Extend a temporary 10 percent surcharge on the corporation tax for two more years through 2013.
  • Increase the cigarette tax from $3 to $3.40 per pack and boost rates on all alcoholic beverages.
  • Add 3 cents to the 25 cents-per-gallon retail gasoline tax and 2 cents per gallon on the diesel fuel levy.
  • Increase the insurance premium tax rate from 1.75 to 1.95 percent.
  • Increase the tax on electricity generation by 2/10ths of 1 cent per kilowatt hour.
  • And lower the threshold value for estates subject to the inheritance tax from $3.5 million to $2 million.

Besides bolstering state revenues, Malloy also would significantly increase municipal taxes. His budget would end property tax exemptions on boats and aircraft, double the local real estate conveyance tax rate, create a new 3 percent municipal cabaret tax on music performances and place local surcharges on hotel stays and car rentals, part of which would go to towns.

These changes would help towns collect an extra $85 million next fiscal year and $129 million by 2012-13.

Malloy said before his budget was released that state officials, when considering any new taxes on business, also must remember that businesses already face a tax hike outside of the regular state budget starting this September.

The state’s unemployment compensation trust fund has been insolvent since October 2009 and has relied on $530 million in interest-deferred federal loans to keep it afloat. The interest waiver expired on Jan. 1, and Connecticut must begin paying that interest this summer.

The state Department of Labor notified companies in late December that it would levy a $40 million assessment, equal to about $40 per worker, starting Aug. 1, to cover interest owed for the first nine months of this calendar year.

Despite all of these new and proposed burdens, Malloy said his administration’s chief focus is on putting Connecticut back to work.

“Without jobs, government’s resources will dry up, its programs will become exhausted, and the relief they provide will be temporary, to no lasting effect,” Malloy told legislators in his budget address. “Jobs, ladies and gentlemen, represent the light at the end of the budget tunnel. That’s why job creation drives this budget. … From this day forth, state government will exist to help create jobs, not just to perpetuate itself.”

Malloy’s budget includes the “First Five” program to spur job growth.

The commissioner of the Department of Economic and Community Development would be authorized to combined existing tax incentive programs to focus incentives on business developments that commit to creating at least 200 new jobs within two years, or to making a $25 million or greater investment to create at least that many jobs within five years.

The governor’s plan also would:

  • Raise the cap on tax credits granted through the Urban and Industrial Site Reinvestment Program from $500 million to $700 million.
  • Raise the tax credit cap on the primary Job Creation Tax Credit Program from $11 million to $20 million.
  • And increase the maximum amount of corporate tax liability that can be erased with job creation credits from 70 percent to 100 percent.

Barnes said the governor’s plan also makes important investments in areas crucial to long-term job development — but too often under-funded in recent years.

Malloy wants to commit $1.09 billion in state bonding over the next two fiscal years to projects to repair or expand Connecticut’s congested transportation network. Another $80 million  would be bonded over the biennium for general economic development and manufacturing assistance and 658.5 million would be bonded to help renovate aging water treatment plants.

“We think that the state has under-invested in its infrastructure and we will begin an orderly process of catching up,” Barnes said.

Malloy also kept a campaign pledge to reverse last year’s decision by then-Gov. M. Jodi Rell and the legislature to eliminate the $15 million annual statewide tourism marketing budget.

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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