Editor’s note: Once a month The Mirror addresses five points about a key element of the state budget process. Today’s story looks at some of the lesser-known aspects of the new $40.3 billion biennial state budget adopted last week by the General Assembly and expected to be signed by Gov. Dannel P. Malloy.

five things

1) Some Taxes Were Cut.

Lost amidst about $1 billion per year in tax increases was an income tax cut for Connecticut’s retired veterans. The state currently exempts 50 percent of military pensions from the income tax. The new budget boosts the exemption to 100 percent, saving veterans $10 million over the next two fiscal years combined.

2) Hospitals take a last-minute hit.

Connecticut’s hospitals, which already have seen a 2011 provider tax arrangement turn sour, have been bracing for another tax increase since February. But even that deal turned worse just days before the budget was adopted.

Hospitals currently pay $350 million per year to the state and originally got all of that and then some back. But now they receive just $96 million back. The new budget was going to increase the annual tax by another $161 million – but also return all of those funds to the industry. This back-and-forth arrangement helps the state qualify for more federal assistance. The final budget, though, bumped the annual tax increase to $207 million while leaving the increase in reimbursement at $161 million.

3) More red ink in Connecticut’s future?

Despite about $1 billion per year in tax increases in the new budget, state finances may not be stabilized over the long-term. According to nonpartisan analysts, the first fiscal year after the new budget, 2017-18, has an $832 million hole built into the general fund – equal to 4.1 percent of the annual operating budget.

A similar situation existed two years ago when legislators and Malloy adopted the two-year budget that is about to end on June 30. At that time, analysts warned of a $712 million hole, also representing about 4 percent of the general fund, built into finances in 2015-16. That deficit projection eventually swelled beyond $1.4 billion, leading to many of the tax increases in the latest budget.

4) Better savings habits for state government.

In the hope of averting more deficits down the road, lawmakers this year did adopt Comptroller Kevin P. Lembo’s blueprint to improve Connecticut’s savings habits. This provision requires automatic deposits into the emergency budget reserve whenever the state’s income or corporation taxes rake in far more dollars than expected. It also increases the maximum amount the state can set aside from 10 to 15 percent of the general fund.

 5) Is Bethlehem going to the dogs?

The new budget authorizes $50,000 in state funds to help the town of Bethlehem with its animal control expenses. The Litchfield County community incurred significant costs three years ago when it took over the care of more than 60 dogs it seized from an animal rescuer who kept them in what authorities said were substandard conditions.

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.

Arielle Levin Becker covered health care for The Connecticut Mirror. She previously worked for The Hartford Courant, most recently as its health reporter, and has also covered small towns, courts and education in Connecticut and New Jersey. She was a finalist in 2009 for the prestigious Livingston Award for Young Journalists, a recipient of a Knight Science Journalism Fellowship and the third-place winner in 2013 for an in-depth piece on caregivers from the National Association of Health Journalists. She is a 2004 graduate of Yale University.

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