Gov. Dannel P. Malloy heard plenty of strategies he has already implemented or endorsed as he met Monday morning with governors and other officials from northeastern states at an economic forum.

But amid other states’ stories of increased business loans, expanded roles for colleges and universities and new financial incentives for high-technology firms came another category Malloy couldn’t match: major state tax cuts.

Malloy, who inherited one of the largest per capita budget deficits in the nation when he took office in January, said he’s confident that the $1.5 billion in new state taxes he signed into law–coupled with about $1.3 billion in spending reductions below current service levels–did the overwhelming bulk of the work needed to put state government finances back on a stable track.

“It would be literally impossible to have a discussion with people about why they should remain in our state, or how they might move jobs into the state” until that deficit was resolved, Malloy said at the National Governors’ Association forum on state job growth held at the Hartford Hilton–the first of four planned nationally between now and April.

When Malloy took office in January, the 2011-12 fiscal year had a built-in deficit projected as high as $3.67 billion, or nearly 20 percent of all annual revenue.

Nebraska Gov. David Heineman, a Republican, boasted of how his administration signed the largest annual tax cut in his state’s history, about $325 million, just prior to the state of the last recession. “It made a real difference in our business climate,” he said, adding that Nebraska reversed its national reputation and began popping up on lists ranking the country’s most business-friendly states.

Delaware’s Democratic governor, Jack Markell, said his state recently cuts levies on public utilities and business receipts, but it was a tax cut for the financial services industry led to accusations “of bailing out banks.

“This was really about what we could do to help (the industry) grow in our state,” he said.

An economic development official from Maine talked about $150 million in cuts to personal and corporate income levies while a counterpart in New Hampshire said one of the key components of that state’s strategy is to “maintain the New Hampshire advantage” of no general sales or income tax.

“Connecticut is a slightly different story,” Malloy said, noting that only the Nutmeg state and Michigan suffered from more than two decades with no net job growth.

“We had a fair amount of catching up to do,” he said, adding that lowering taxes wasn’t close to the top concerns he’s heard since announcing plans in June for a special legislative session to promote job growth.

Increasing access to capital, ensuring colleges and universities produce sufficient numbers of graduates prepared to work in growing fields and streamlining state government’s role in business regulation all were higher priorities, Malloy said.

The president and chief executive officer of Connecticut’s main business lobbying group said while this year’s state tax hike was significant, it’s more important that Connecticut officials be concerned about taxes in the future.

“I think it’s an issue that can’t be ignored,” Connecticut Business and Industry Association CEO John Rathegeber said. “It’s an area where Connecticut moved in a different direction.”

But Rathegeber quickly added that “now we have to show that we’re not going to be in a cycle of raising taxes and raising taxes. The governor did inherit a terrible situation. Now the administration has to show it is willing to constantly drive waste out of the system.”

Darren Pleasance, a small business growth specialist with McKinsey and Company, an international economic development research think-tank, told those at Monday’s forum that while taxes traditionally are a strong concern, poor sales now are the chief worry for most of America’s small businesses.

“There is a fundamental concern about their ability to find customers to buy their products,” he said, adding that they cited excessive government regulation as their chief obstacle toward correcting that problem.

Malloy added that while he believes the difficult choices made this past spring to balance the state’s finances resolved the bulk of the budgetary instability he inherited, Connecticut cannot fully avoid the impact of dangerous economic signs both at the national and international levels.

“You have to be concerned about the larger issues at play,” he said, adding that the administration had hoped to see “more robust growth” in the nation’s economy over the summer and fall, a prospect weakened by increasing financial market instability, particularly in Europe. “But I believe we’re moving in the right direction.”

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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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