House Democrats offer modest town aid shift in new budget
Majority House Democrats unveiled a new budget Wednesday that matches the town aid proposed by Gov. Dannel P. Malloy while redistributing education funds more modestly from wealthy and middle-income towns and into poorer communities.
But the House Democratic plan, which still features a sales tax increase and surcharges on restaurant and hotel transactions, avoids taxing hospitals and billing cities and towns for teacher pension costs as proposed by the governor.
The caucus proposal also would reduce income tax credits for middle-income families and for the working poor, and defer a third consecutive income tax break for retired teachers.
Democrats, who hold a 79-72 edge in the House, say their plan would reduce overall municipal aid in the budget by 5 percent to help close major projected deficits in each of the next two fiscal years.
Trying to shield cities and towns
“This is an honest, balanced proposal that reflects the many and diverse priorities of the families and businesses of our state, and with continued good faith negotiations by all parties will help us cross the finish line in the next few weeks,” said Speaker of the House Joe Aresimowicz, D-Berlin.
“The thing we have heard loud and clear from our caucus and our constituents is that one of Connecticut’s greatest assets is our public schools and the quality of education our students receive,” said House Majority Leader Matt Ritter. “Although raising revenue is always a last resort, it is a necessary step to ensure that we continue to have a great education system that attracts so many young families to our state. Our goal is not to simply protect our school systems, it’s to make them even stronger in every town across the state.”
Resources for cities and towns would be down about 9 percent next fiscal year under the governor’s plan.
Besides trimming both education and non-education grants, the governor wants cities and towns to pay a total of $400 million per year to cover nearly one-third of the $1.3 billion annual contribution to the state pension program for municipal teachers.
To partially offset that burden, though Malloy also wants to end nonprofit hospitals’ exemption from municipal taxation. This change would pump about $210 million annually into local coffers.
The House Democratic plan relies on the sales tax increase — from 6.35 to 6.85 percent — and on 1 percent surcharges on restaurant and hotel transactions to largely replace the teacher pension bills and hospital taxation proposals in the governor’s budget.
Other tax hikes also proposed
The caucus budget relies on other tax increases besides the sales levy.
It would suspend an income tax cut for retired teachers. Ten percent of teachers’ pensions were exempted from the state income tax with returns filed in the spring of 2016. That tax break grew to 25 percent this past spring, and would climb to 50 percent next spring unless deferred.
The House Democrats’ proposal to suspend this tax break would save the state about $8 million per year.
The caucus is asking for more from middle-income and poor households.
Restricting the existing $200 property tax credit within the income tax only to households with dependents would cost middle-class filers about $55 million per year.
Working poor families would lose about $25 million annually under another proposal to scale back the state Earned Income Tax Credit from 27.5 percent of the federal EITC to 25 percent.
The caucus plan also incorporates Malloy proposals to boost the cigarette tax by 45 cents per pack and to increase the real estate conveyance levy on properties valued at more than $800,000.
“We appreciate that the House Democrats put forward a full proposal and will analyze it in detail over the coming days,” Malloy spokeswoman Kelly Donnelly said. “At first blush, this budget is not something the governor could support in its current form. With that said, it is well understood that they intend to negotiate many of the specific suggestions in this document.”
“It took the House Democrats eight months to come up with another $1 billion tax hike as the only means to solve the state’s financial crisis,” said House Minority Leader Themis Klarides, R-Derby. “These tax hikes will slam the middle class and further erode our quality of life in Connecticut,’’’ Klarides said. “The Democrats want to continue down the path that has led us to the precipice of fiscal ruin.’’
“I’m glad House Democrats have released a plan today. Bringing ideas to the table certainly helps to move the process along and is what Republicans have been waiting for,” said Senate Republican leader Len Fasano of North Haven. “I just received the proposal and will be reviewing it in greater detail.”
Very modest redistribution of education aid
House Democrats also took a more restrained approach than the governor did in terms of redistributing education aid.
The plan would shift just under $10 million out of a $2 billion Education Cost Sharing (ECS) program to the 30 lowest performing school systems, referred to as Alliance Districts. Two-thirds of the total grant would continue to go to these districts. Malloy’s proposed budget would direct 78 percent of state education aid to those districts.
In a mid-May proposal, Malloy recommended eliminating education aid entirely for 30 communities — most of which are located in Fairfield County in order to redistribute much more money to these 30 districts.
The new House Democratic plan has 25 communities losing all ECS aid, and another 25 school districts losing anywhere from 2 to 88 percent of their ECS funding.