Finance panel dangles tax relief — but can the state afford it?

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Sen. John Fanfara and Rep. Jason Roja, the Democratic co-chairs of Finance.

As legislators learned state finances could run $4.7 billion in deficit over the next two fiscal years, one panel unanimously endorsed close to $50 million in small tax cuts by 2018 — and more gradual repeal of a $550 million tax on hospitals.

After the action, leaders of the Finance, Revenue and Bonding Committee conceded that the cuts may never come to pass, given Connecticut’s enormous fiscal woes.

“It’s going to be difficult,” said Rep. Jason Rojas of East Hartford, House Democratic chair of finance. “I think the realities of the fiscal situation are what they are. We still felt it was important to make a policy statement about the things we value, but it’s going to be hard to hold onto anything going forward.”

So was the committee vote just a tease to taxpayers?

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Sen. L. Scott Frantz, R-Greenwich (left) and Rep. Chris Davis, R-Ellington (right)

“There’s no question we all thought about that,” said Sen. L. Scott Frantz of Greenwich, the Senate GOP chair on finance, who quickly added that was not the case.

“We’re looking at a lot of new things that don’t seem to make sense given the overall perspective that we’re looking at right now,” he said, adding Republicans were anxious to participate in a bipartisan statement about the importance at least of striving for tax cuts. “We’ve got to start somewhere in terms of getting things under control.”

The panel endorsed reductions to taxes on gifts and inheritances, insurance companies and coin-operated car washes. The latter would face no sales tax.

It also recommended new income-tax exemptions for pension and Social Security earnings and a $500 income tax credit for college graduates with science, math or engineering degrees who live or work in Connecticut after graduating.

Most of this tax relief would kick in by 2018, and it would be partially offset by cutting $25 million from an income tax credit for the working poor and by increasing the price of marriage licenses from $30 to $50.

But if the prospect of providing about $50 million in net tax relief is daunting given that state finances — unless adjusted — are expected to run $2.2 billion in deficit next fiscal year and $2.5 billion in 2018-19, then a plan to eliminate hospital taxes may face a more difficult challenge.

The committee unanimously recommended eliminating the $556 million state tax on hospitals, reducing it in seven, $80 million stages, starting in 2021.

Unfortunately, the surging public-sector retirement benefit costs that are a major factor behind the latest projected deficits are expected to get dramatically worse between now and the early 2030s.

For example, the state’s annual contribution to the municipal teachers’ pension fund, which stands currently at $1 billion, is projected under one study to increase by more than 520 percent over the next 15 years, topping $6.2 billion by 2032.

Can Connecticut deliver tax relief to hospitals in the face of these growing costs?

Sen. John Fonfara of Hartford, Senate Democratic chair of finance, said the first step is to make a clear statement that this must be a priority.

“We believe there needs to begin to be movement,” he said. “What that structure ultimately is will be debated.”

Fonfara also praised the hospital industry. Though nonprofit hospitals currently are exempt from local property taxation, some have volunteered to make payments to help municipalities with their fiscal challenges.

“The hospitals stepped up,” he said. “They want to be good citizens.”

The committee endorsed a measure that would allow hospitals to receive a matching credit against their state tax obligation for any funds contributed to their host city or town.

Gov. Dannel P. Malloy was cautious in his response to the proposed tax relief.

“The revenue bill that passed in committee today is obviously not going to be the final package – there is much work still to do, and projections continue to change,” the governor wrote in his statement. “But here’s what should be obvious: today’s committee vote confirms a clear and growing consensus between our administration, and legislative Democrats and Republicans that this year’s eventual budget should not and will not be driven by new revenue.”

Rep. Chris Davis of Ellington, the ranking House Republican on finance, said that while he was pleased with the bipartisan statement in support of tax relief, he is dismayed that Democratic leadership in the House and Senate won’t rule out income or sales tax increases to help balance the next budget.

I’m very concerned that despite the bipartisan consent vote here today that the Democrats will ultimately include those tax increases at the end of the day,” Davis said.

In other business Thursday, the committee also endorsed a bill that would direct the Department of Transportation to develop a plan to discount in-state drivers in the event tolls are established.

The bill, however, would not order the establishment of tolls.

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