Senate approves Malloy’s first budget, 19-17

The Senate voted 19 to 17 shortly after 3 a.m. today to pass and send to the House a $40.1 billion biennial budget loaded with a broad array of tax and fee increases that Gov. Dannel P. Malloy says are necessary to stabilize Connecticut’s rocky finances.

Debate began at 4:18 p.m. Monday on a budget that sets Malloy, who was elected last year as the state’s first Democratic governor in 20 years, apart from the nation’s other governors by embracing nearly $2.6 billion in tax increases over the next two years. House approval is expected later today.

Democrats Joan V. Hartley of Waterbury, Edward Meyer of Guilford and Gayle Slossberg of Milford joined all 14 Republicans in opposing the budget proposed by Malloy and revised by the Democratic majority.

“The senators who voted for this budget early this morning should be commended for making the tough decisions necessary to begin the process of getting Connecticut’s fiscal house in order,” Malloy said in a statement. “That was a tough vote to make, but it was the right vote to make. It was a vote for an honest budget, one that’s balanced with no gimmicks, and one that will stabilize the state’s finances and lead to our ultimate goal: job creation.”

Malloy’s staff says the budget, likely to become law by mid-week, is a testament to a new Democratic governor’s willingness to make difficult choices to erase an inherited deficit of at least $3.2 billion, while the Republican minority leader, Sen. John P. McKinney of Fairfield, says it merely defines him as another “tax-and-spend liberal.”

“It’s the most fiscally responsible budget that has been put on the table by a governor in recent memory. That’s how it defines him,” said Roy Occhiogrosso, the senior adviser to Malloy.

Occhiogrosso said the budget preserves the social safety net and maintains state aid to municipalities, a contrast to the budgets offered by two neighboring governors, Republican Chris Christie of New Jersey and Democrat Andrew Cuomo of New York. Spending increases by about 2 percent in each year of the biennium.

But Republicans criticized the sheer variety of tax and increases, as well as their record total of $1.4 billion in the next fiscal year.

“You’ve given it to the monster of government,” McKinney said of the new revenue.

Over 11 hours, it seemed that each GOP senator who rose to speak mentioned the record size of the tax increase, connecting the milestone to the Democrats’ control of the legislature and governor’s office for the first time in 20 years.

“I want to ask my Democratic colleagues if that is the legacy they want to write for themselves in resuming control?” said Sen. Joseph Markley, R-Southington, who helped organized a mass protest in 1991 against the passage of the income tax.

A no-tax alternative budget offered by the Republicans was defeated at 12:28 a.m. today on a party-line vote, 22 to 14. It was the first of a series of GOP amendments destined to fail on party-line votes, included a proposal by Sen. Scott Frantz, R-Greenwich, to sunset every tax increase.

Under the Democratic budget, the sales tax jumps from 6 percent to 6.35 percent, and it will be applied to previously exempt items like non-prescription drugs, smoking-cessation products, drug grooming, cosmetic surgery, yoga classes, pedicures and manicures, and inexpensive clothing and shoes. One-tenth of one percent of the increase will go to municipalities.

“For the middle class, I guess the message would be, ‘Hold onto your hat, we are going to tax you from head to toe–and everything in between,’ ” Sen. Andrew Roraback, R-Goshen, said on the Senate floor.

Senate Majority Leader Martin M. Looney, D-New Haven, said Connecticut was one of many states in fiscal crisis. “This budget does reflect a reasonable response to that crisis,” Looney said.

Nearly $725 million of the increased revenues in the first year come from the income tax, while raising the sales rate will produce $138.4 million and eliminating the sales-tax exemption on clothing costing less than $50 raises another $128.1 million.

The bill also increases the sales tax to 7 percent on luxury items, defined as clothing costing more than $1,000, jewelry above $5,000, cars above $50,000 and boats above $100,000. It is projected to raise $3.6 million next year.

The excise tax on alcohol goes up by 20 percent, diesel fuel taxes jump from 26 cents to 29 cents per gallon, the levy on a pack of cigarettes rises by 40 cents to $3.40, and a new cabaret tax of 3 percent will be charged on admission, food and drink at any bar or club with live music. Under pressure from legislators, Malloy dropped his demand for a 3-cent-a-gallon increase on gasoline.

The budget also eliminates an exemption from the 10 percent admissions tax now enjoyed by more than a dozen arenas, ballparks and racetracks, plus the Connecticut Convention Center in Hartford.

Income taxes go up as the state increases the number of tax brackets from three to six, with the top rate increasing from 6.5 percent to 6.7 percent. A single filer earning $50,000 will see his tax rate increase from 5 percent to 5.5 percent.

Most joint filers making between $50,000 and $100,000 would pay $200 more in income taxes annually, with the increase rising to $510 on an income of $125,000, $825 on $150,000, $900 on $200,000, and $1,400 on $250,000. At the high end, the tax hike would be $17,400 on $1 million and $19,400 on $2 million.

Fees would increase from $100 to $150 for a cremation, while the cost of a four-year drivers’ license would go up from $44 to $48. A two-year car registration goes from $75 to $80.

The corporate tax surcharge would increase from 10 percent to 20 percent and be extended until 2012. It raises $46 million.

A temporary tax of 1/4 of a cent per kilowatt hour on electric generation facilities would raise $72 million in each of the next two years, then sunset in 2013.

The state would spend $110 million on an earned income tax credit for lower-income residents. In 2010, the maximum credit under the bill would have been $1,700 for filers who earned an adjusted gross income of $43,352 singly or $48,362 jointly and had three or more children.

By reducing the maximum property tax credit from $500 to $300, the state would save $150 million. By lowering the estate and gift tax threshold from $3.5 million to $2 million, the state would collect $22.4 million.

Senate President Pro Tempore Donald E. Williams Jr., D-Brooklyn, accurately predicted before the debate that the budget would pass with votes from 19 of the 22 Democrats in the Senate.

“I think this is a historic day for Connecticut,” Williams said. “At the end of this day we will have passed a balanced budget in the Senate, sent it on the House and put Connecticut back on the path to economic recovery sooner than anyone would have imagined.”

The administration said the combination of tax increases, selected spending cuts and a demand for $1 billion in labor savings in each of the next two fiscal years would erase the state’s structural deficit.

But the leaders of the House and Senate Republican minorities, McKinney and Rep. Lawrence F. Cafero Jr. of Norwalk, told reporters before the debate they would offer a Republican alternative budget in each chamber that could balance the budget without tax increases.

They complained that the budget supported by Malloy and the Democratic legislative leaders raises so much in taxes it would leave the state with a surplus of about $1 billion over the next two years.

“To the extent there are surplus dollars, he would like to use them to continue to stabilize the state’s finances,” Occhiogrosso said.

Any surplus would be used to pay down the debt, replenish the rainy day fund or address the state’s unfunded liabilities for pension and retiree health costs, he said.

In total dollars, the single-year tax increase is the largest in state history. Adjusted for inflation, the record belongs to the 1991 tax increase passed by the legislature at the insistence of Gov. Lowell P. Weicker Jr., an independent.