When Gov. Dannel P. Malloy obtained $1.5 billion in tax hikes two years ago, his administration insisted it was unfair to include $350 million in new hospital taxes in that total.
The state was reimbursing hospitals for every dollar they paid out. As long as that happened, the argument went, it was a tax in fiscal notes and legal terms only.
Two years later and the governor and his fellow Democrats have negotiated a tentative budget that reduces reimbursement by about $400 million over the next two years.
So is it a new tax now?
The answer remains “no” from Malloy and Democratic legislative leaders.
But for hospitals, Republican legislators and even some rank-and-file Democratic lawmakers, the “no new taxes” message doesn’t hold up.
Welcome to the rhetoric of budget politics at the state Capitol.
“The bottom line is we will not increase taxes or create any new taxes,” Malloy told reporters Tuesday as he answered questions about the tentative deal struck late last week. Those who argue the budget raises taxes and contains gimmicks, he added, are “trying to score cheap, political points.”
The hospitals “are screaming and understandably screaming,” said Rep. Sean Williams of Watertown, ranking House Republican on the tax-writing Finance, Revenue and Bonding Committee.
The state had been collecting $350 million per year from the hospital industry, and then paying it right back through two accounts: one that helps hospitals fund inpatient services to Medicaid clients, and a second that helps cover the cost of treating the uninsured.
The whole back-and-forth arrangement was part of a plan to help Connecticut qualify for more federal health care funding, and the administration shared that bounty with hospitals as well.
But the governor’s new budget – as well as the tentative deal struck last week – reduces those reimbursements by about $400 million in total over the next two years.
When the administration first detailed the $1.51 billion list of tax increases it sought two years ago the hospital tax was left off, because of the full reimbursement.
Malloy and his fellow Democrats can’t keep insisting they only raised only $1.5 billion in taxes two years ago, unless they are prepared to count the unreimbursed hospital tax today, Williams added.
“By their own logic,” he said, “it’s a new tax now.”
When the administration unveiled its latest budget plan in February, it initially referred to those changes in hospital reimbursements as spending cuts.
“The decision to reduce hospital funding was not an easy one,” the governor’s budget introduction states.
But after the Connecticut Hospital Association began reminding legislators and reporters that a cut to these reimbursements equaled an effective tax hike — the administration tweaked its message.
When Malloy appeared on May 6 on WNPR’s public affairs show “Where We Live,” he responded quickly when host John Dankosky asked about the hospital funding reductions the governor’s own budget staff wrote about in his budget.
“Let me stop you right there,” Malloy told Dankosky about four minutes into the program. “There aren’t cuts to hospitals.”
The administration insists that while the hospitals lose $400 million in tax reimbursements, they will make it back. But to do so, hospitals will have to treat thousands more poor patients covered through Medicaid.
“It is time for people to trim their sails, to find ways to deliver great service at less expense,” the governor said, adding that all hospital-related state spending should be $1.7 billion next fiscal year, just as it is this year. “We’re not cutting, we’re funding.”
The hospitals respond that they lose money on Medicaid patients and now face a costly double-whammy: rising taxes and a surging low-income caseload.
“The proposed budget contains what essentially amounts to a new tax on hospitals,” the CHA wrote in a statement Friday.
“In 2011, the state instituted a hospital provider tax so it could benefit from federal matching funds. The state promised to return to hospitals all their tax money plus a little more. … That plan changed.”
So is it a tax hike?
“Hospital funding has increased 245 percent over the last 10 years,” Malloy spokesman Andrew Doba said Friday. “They received $1.7 billion dollars last year, and the governor’s proposed budget holds that funding level in the coming fiscal year. They face no additional tax burden, and any attempt to say otherwise is simply not accurate.”
But some of the governor’s fellow Democrats in the legislature say the “no new taxes” line doesn’t hold up.
Though he initially said the next budget represents “an additional cost placed on hospitals,” Sen. Edward Meyer, D-Branford, reconsidered when he remembered the original tax on hospitals had been fully reimbursed.
“I think there’s a double-standard” to insist taxes aren’t going up for hospitals, he said. “This is pretty much a semantics battle and a political battle. You get them in this building.”
Rep. Henry Genga, D-East Hartford, said he agrees with the governor that Connecticut’s hospitals needs to tighten their belts, but the tax hike can’t be denied.
“The hospital tax is a good deal,” he said. “It helped us get those federal dollars. It’s a good deal. But we know what’s happening now.”
Rep. Daniel Rovero, D-Putnam, fears his local hospital, Day Kimball, could be harmed severely by the new budget.
“We use a different name for it, but it’s a tax,” he said. “Call it less reimbursement from the tax we’ve been charging you, but it’s a tax.”
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