A state legislative panel voted Thursday to endorse a new tax on fantasy sports games, delay an income tax cut for retired teachers, impose a new fee on retail businesses and raid $20 million in ratepayer funds from a program to control greenhouse gases.
Though legislative leaders have insisted that tax hikes wouldn’t be considered in 2016, the Finance, Revenue and Bonding Committee is facing increasing pressure to do so now that all budget proposals for the fiscal year starting in July are hundreds of millions of dollars out of balance.
According to committee records, all of the policy changes endorsed Thursday by the Democrat-controlled finance panel result in a net revenue gain to the state of only $10 million.
For most of the legislative session, the panel was working on a series of changes that would have reduced revenues by about $50 million. The tax and fee increases and other policy changes brought forward Thursday would raise about $60 million annually, leading to a net revenue increase of approximately $10 million.
Rep. Jeffrey Berger, D-Waterbury, co-chair of the finance committee, said he believes the overall revenue plan is “a solid package that helps with innovative ideas” and gives Connecticut “the ability to stimulate economic development and statewide growth.”
The panel adopted the changes in a party-line vote after a host of Republican objections.
Rep. Vincent J. Candelora, R-North Branford, a veteran member of the committee, predicted that Connecticut’s “predatory” way of imposing new taxes and fees — developed behind closed doors — on businesses and consumers would weaken the economy further.
“These policies were not before us at public hearings,” Candelora said. “It is just the wrong way to set the tone.”
“I think you’re going to have screaming banshees on your hands because it feels like a nail in the coffin,” added Sen. Michael McLachlan, R-Danbury.
But Sen. John Fonfara, D-Hartford, the committee’s other co-chair, challenged Republicans to offer any proposal to address the imbalance in state finances.
Republicans offered none.
Fonfara also said that the fantasy sports tax had been discussed among some members this session, though he couldn’t recall whether any talks had happened at public meetings.
And the Hartford senator added that “we examine the fee structure in Connecticut all of the time” and that most legislators recognize fee changes are not that unusual.
According to the legislature’s nonpartisan Office of Fiscal Analysis, the original $20.4 billion state budget for the 2016-17 fiscal year, adopted last June, is about $930 million in the red. Gov. Dannel P. Malloy offered a proposal on Feb. 3 to balance it with spending cuts, but his plan is now out of balance by more than $340 million because of eroding projections for state tax receipts. And a plan offered Wednesday by the Appropriations Committee also is out of balance by about $340 million.
“As we said yesterday, while we appreciate that ideas are being put on the table, this effort is incomplete,” Malloy spokesman Devon Puglia said after the finance committee vote. “It doesn’t go far enough in changing how Connecticut budgets. New burdens on small businesses and sweeps of critical energy and environmental funding are not the answer. This year, we need to do things differently.”
Puglia said Wednesday that the governor would submit a revised proposal next week that would balance finances for the upcoming fiscal year.
Tax and fee changes: Some winners…
The plan does include several tax and fee changes that reduce burdens on businesses and individual taxpayers.
A series of sales tax changes was included in the package. The sales tax on coin-operated car washes and on certain parking fees would end in July and save consumers a total of $1 million next fiscal year.
Other changes, which would start in July 2017, would exempt feminine hygiene products and disposable and reusable diapers, lower the sales tax rate on boats from 6.35 to 3 percent and drop the rate on luxury goods from 7.75 to 6.35 percent.
Several other tax cuts endorsed by the committee on Thursday, and the projected savings for businesses or individuals in 2016-17 include:
- Adjusting the state income tax exemption for single filers to achieve parity with married couples, $5.0 million.
- Exempting Milford Hospital and Day Kimball Hospital in Putnam from the state’s hospital provider tax, $3.9 million.
- Restoring the limit on research and development credits to 70 percent of a company’s total tax liability, and making other corporation tax changes, $1.5 million.
- Reducing the tax on ambulatory surgical centers, $1.3 million.
- Lifting the moratorium on the state’s film tax credit program for films that produce at least half of their content in Connecticut and meet other criteria, $1.2 million.
- Eliminating the admissions tax at certain venues, $1.1 million.
One of the corporations that criticized Malloy and the legislature last year over tax hikes, Boehringer Ingelheim Pharmaceuticals, released a statement this week in support of restoring the research and development tax credit. The international pharmaceutical giant has a facility in Ridgefield.
State tax data shows $109.2 million in government credits spurred $3.14 billion in Connecticut business investments between 2001 and 2012, said Paige Mahaney, head of research and small molecule discovery for Boehringer Ingelheim in the U.S.
“Given the ROI (return on investment) of the program, one or two R&D projects statewide will easily surpass the short-term revenue gains the state may forego,” Mahaney said.
Research and development-related activities that companies can spend the Connecticut credit on include wages, contracted research and supplies, she said. Credit-related business investments also can lead to construction work and other economic activity that ultimately bolsters state and municipal tax bases.
“The R&D tax credit creates a competitive environment that helps Connecticut remain an attractive place for research and development, and enables businesses in the state to compete globally in innovative discoveries,” Mahaney said.
… And some losers
Set against these cuts, however, were a series of tax and fee increases that hadn’t been discussed by the committee at public hearings this year.
The largest increase, worth about $24 million to the state next fiscal year, involves a new annual fee on businesses that collect sales tax. The fee ranges from $50 to $350 depending on the amount of sales tax they collect.
Another $9.5 million would come from the state’s first-ever tax on fantasy sports games that involve betting. It imposes a fee of $50,000 for initial registration and $10,000 for renewals, but it cannot exceed 10 percent of the entry fees the fantasy game operator collects, minus any cash payouts to participants.
It also requires game operators to impose an 8.75 percent surcharge on the entry fees they collect.
“We are opposed to a tax on our customers’ entry fees,” said Griffin Finan, director of public affairs for DraftKings, a major fantasy sports gaming site. “This is not the time for a new tax on the fantasy sports fans in Connecticut.”
Retired teachers, who currently are enjoying the first stage of a three-tiered income tax cut — and will get a second tax break with the returns they file in April 2017 — would have to wait for the third and final stage under the proposal the committee adopted Thursday.
Gov. Dannel P. Malloy and legislators agreed to exempt 10 percent of teachers’ pensions from the state income tax for the 2015 tax year — which involves returns these retirees must file this spring.
That exemption climbs to 25 percent in the 2016 tax year, involving returns filed 12 months from now.
But the third stage, a 50 percent exemption, was scheduled to kick in during the 2017 tax year, involving returns filed in the spring of 2018. The bill approved in committee on Thursday pushes it back one year, saving the state $7 million.
The package also increases the fees charged when workers file grievances with the state Department of Labor, raising an extra $200,000 next fiscal year.
Sweeping funds from utility ratepayers
The Democratic revenue plan also drew criticism from Republican lawmakers for sweeping $20 million in funds from electricity ratepayers that had been reserved for environmental protection programs. Those funds are collected as part of a regional effort to reduce the greenhouse gas effect.
“I think we’re dropping the ball here,” said Rep. Chris Davis of Enfield, ranking GOP House member on the finance committee, who added Connecticut consumers already pay some of the highest utility rates in the nation. “This sends a terrible message to our constituents.”
Some of the other policy changes in the revenue plan adopted Thursday include:
- Delaying a $9 million payment the state is supposed to make into a reserve fund as part of an ongoing effort to comply with Generally Accepted Accounting Principles.
- Drawing $700,000 from the Tobacco and Health Trust Fund. Those dollars were earmarked for the state’s Asthma Awareness and Easy Breathing programs.
- Collecting an extra $5 million next fiscal year because of enhanced enforcement efforts at the Department of Revenue Services.
- Dedicating $5.5 million in hotel tax revenues to statewide marketing programs.