State legislators were expected to vote today on a bill that would cancel a controversial surcharge on residential and business utility bills without returning about $40 million already collected from Connecticut Light & Power Co. customers since January.

The provision in an omnibus policy bill designed to help implement the $40.11 billion biennial budget adopted last month also would allow the General Assembly to approve the tentative $1.6 billion concession deal currently being presented to more than 45,000 unionized state employees. Workers aren’t expected to finish voting on whether or not to ratify the package until late June.

The so-called “utility tax” is being repealed along with a plan to borrow $646.6 million to help prop up the current state budget, which closes on June 30. That’s because a combination of surging tax revenues and some unanticipated savings have made the borrowing unnecessary, according to Gov. Dannel P. Malloy and Comptroller Kevin P. Lembo, both of whom now are projecting a $680 million surplus for the current fiscal year, which ends June 30.

The governor and comptroller both made statements last week suggesting state government go further than canceling what CL&P and other critics had called a “hidden tax,” and also credit customers for the $40 million paid in so far.

“I certainly would not be against that,” Malloy told Capitol reporters last week, though he quickly added that stopping the surcharge from going forward was his top priority. “We’ve got to get fees off the bill. The largest part of the difference between the cost of electricity in our state and the other New England states are the fees that we put on the bill. In other words, we put ourselves in a deficit when it comes to competition.”

In a written statement issued when he announced the latest surplus projection on June 1, Lembo wrote that “any repeal should include, if possible, refunds to impacted ratepayers.”

But Office of Policy and Management Secretary Benjamin Barnes, Malloy’s budget director, said the fiscal cushion simply wasn’t large enough both to cancel future surcharges — which were supposed to continue for eight more years and affect a second major utility, United Illuminating, in 2012 — and refund the $40 million already paid in.

“Our first priority was to get rid of that bond issuance,” he said.

Richard Soderman, director of legislative policy and CL&P’s parent company, Northeast Utilities, said, “We’re still hopeful we could get the $40 million back to return to our customers.”

Nonetheless, Soderman said, “We are very pleased” that future surcharges have been canceled.

The surcharge stemmed from a decision one year ago by the legislature and then-Gov. M. Jodi Rell to place nearly $1 billion in costs from the upcoming state budget on the shoulders of utility customers.

About $40 million for the 2010-11 budget would be raised with a surcharge of 0.379 cents per kilowatt hour–or $2.65 per month for the typical residential customer using 700 kilowatt hours per month. It was imposed initially solely on CL&P customers and scheduled to run from January through June 30.

Another $956 million was to be borrowed and financed over eight years, also to support the 2010-11 budget, with the annual debt service of $141.6 million to be paid off in two ways starting in 2011-12:

  • A second surcharge, this time equal to 0.47 cents per kilowatt hour – or $3.29 per month for the typical residential customer–was scheduled to replace the current surcharge in July. It would be levied initially only on CL&P customers and was expected to raise $112.9 million per year. After October 2013, though, the rate on CL&P customers would be reduced and the 324,000 customers of United Illuminating also would begin contributing.
  • And $28.7 million to cover the rest of the debt service would be drawn annually from the $82 million reserved for the Energy Conservation and Load Management Fund, which helps households cut their heating bills while creating hundreds of energy efficiency jobs. Lawmakers and Malloy also used this year’s projected surplus to cancel that raid.

Shortly after last May’s budget vote, a last-minute increase in the projected 2009-10 surplus reduced the borrowing target needed to balance 2011 finances from $956 million to $646.6 million.

A second key provision in the bill allows the General Assembly to adopt about $400 million in modifications to the state budget without waiting for a linchpin of that plan — the proposed labor concession package — to be voted upon. If the policy bill is approved, then the labor deal is deemed to have legislative ratification as well.

The regular 2011 legislative session ends June 8, well before all of the state’s 15 worker unions are expected to have finished their voting.

The biennial package adopted in May, which would have spent $19.83 billion next fiscal year and $20.29 billion in 2012-13, counted on the labor deal saving $1 billion annually featured unprecedented built-in surpluses of $371 million and $638 million, respectively.

But the administration projects that the tentative package would save $700 million in the first year in $900 million in the second.

To compensate for that, Malloy issued an adjustment plan on May 27 that largely reduces the built-in surpluses rather than cuts spending.

The new biennial plan would spend $20.14 billion next fiscal year — with a built-in surplus of just under $90 million — and $20.4 billion in 2012-13, with a projected surplus of $555 million.

An omnibus measure with more than 170 sections, the policy bill also restructures scheduled fare increases on Metro North’s New Haven commuter rail lines for two years.

Fares originally were set to rise 1 percent annually from 2010 through 2016. The 2010 and 2011 increases weren’t implemented, and would be replaced under this measure with a 1.25 percent hike on Jan. 1, 2012.

The bill orders 1 percent increases each Jan. 1 from 2013 through 2018.

Rather than restricting revenues from the rate hikes to a revitalization program for the New Haven line, the legislation also allows the receipts to be used for any initiative within the state budget’s Special Transportation Fund.

Other provisions of the bill would:

  • Carve out a last-minute exemption from the new tax hike on electricity generation, a 0.25 percent per kilowatt levy expected to raise $72 million annually. Resource recovery facilities that burn solid waste would not have to pay the increase.
  • Lower the threshold for application of the state’s inheritance tax from estates valued at $3.5 million to $2 million retroactive to Jan. 1, 2011.
  • Lower from 70 percent to 30 percent the amount by which an insurer can reduce annual insurance premium tax liability through credits. This new limit applies to the 2011 and 2012 tax years.
  • Increase the tax on snuff tobacco from 55 cents per ounce to $1, and the levy on all other tobacco products from 27.5 percent of wholesale price to 50 percent. It caps the tax on cigars at 50 cents each.
  • Institute the so-called “Amazon law” tax by requiring online retailers whose in-state affiliates sell more than $2,000 worth of goods annually in Connecticut to collect state sales tax and remit it to the Department of Revenue Services.
  • Create a new grant program to help communities fund various services if provided collaboratively between two or more cities and towns.
  • Exempt all manufacturing and machinery equipment from property taxes regardless of when they were purchased. Under current law, those items are exempt only if purchased after Oct. 1, 2006.
  • Eliminate state payments to cities and towns to compensate for lost property taxes in connection with exempt manufacturing and machinery equipment.
  • Allow communities to form special taxing districts to provide ferry service.
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Keith M. PhaneufState Budget Reporter

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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