The proposed solution to the Connecticut budget impasse would break new ground, raising taxes or fees on seasonal homes, cell phones and fantasy sports gambling as part of a broad package of increases expected to raise $1.53 billion across this fiscal year and next combined.
But the total increase drops to $842 million if a $344 million-per-year tax hike on hospitals is not counted — since the budget calls for the industry to get all of those funds back as part of a plan to leverage more federal Medicaid reimbursements for Connecticut.
As a prelude to action by the full General Assembly, the legislature’s Finance, Revenue and Bonding Committee narrowly endorsed revenue estimates Thursday afternoon that reflect higher tax rates on hospitals, hotel stays, cigarettes and other tobacco products, curtailment of income and sales tax credits, and a requirement that municipalities cover a portion of the annual contribution to the teachers’ pension program.
Earlier proposals to reduce Connecticut’s estate tax — which is imposed on estate’s valued at more than $2 million — and to increase taxes on real estate conveyances and on e-cigarettes were scrapped.
The Democrat-controlled committee approved the plan 26-25 in a vote along party lines.
“This revenue plan, it’s an admission we are desperate.” said Sen. L. Scott Frantz of Greenwich, the committee’s Senate Republican co-chair, who said the proposed increases would undercut already sluggish job growth in the state.
“The brand of Connecticut is hurting,” Frantz added. “High-profile companies are leaving the state of of Connecticut and not keeping it a secret as to why they are leaving.”
The proposed budget would raise taxes and fees by $684 million this fiscal year and by $851.3 million in 2018-19. The total increases fall to $350 million and $507 million, respectively if the hospital tax is not counted.
The budget also cancels previously approved tax cuts that hadn’t been implemented yet for businesses and retired school teachers. That saves Connecticut $34.4 million this fiscal year and $33 million in 2018-19.
Sen. John Fonfara, D-Hartford, and Rep. Jason Rojas, D-East Hartford, the other co-chairs, said the tax and fee hikes were part of a much larger plan to close significant projected deficits in state finances.
Increasing the state’s hospital provider tax from 6 percent to 8 percent would require the industry to pay an extra $344 million per year in total. But hospitals would receive those payments back, which in turn would qualify Connecticut for a huge boost in federal Medicaid funding.
The revenue plan anticipates federal aid to the state’s General Fund would grow by $434 million this fiscal year and by $392 million in 2018-19.
Analysts say that surging debt and retirement benefit costs, coupled with declining income tax receipts, would be the major factors forcing a $1.6 billion deficit this fiscal year — unless state finances are adjusted. And the potential gap grows to $1.9 billion in 2018-19.
Gov. Dannel P. Malloy issued a mid-afternoon statement Thursday urging legislators to compromise and adopt the new budget.
“The urgency of the present moment cannot be overstated,” the governor wrote. “It is critical that a responsible budget is passed by the General Assembly, one that provides greater predictability and stability for the people and businesses of Connecticut. Local governments, community providers, parents, teachers and students — all of them are best served by passing a budget, and passing it now.”
Malloy added that “the budget framework now being finalized by the General Assembly appears to be a balanced and responsible compromise.”
But Rep. Chris Davis of Ellington, the ranking House Republican on the committee, said the budget does not reflect the conservative approach Malloy said he would take regarding taxes.
“We’re looking at what we were told was a budget that would not be driven by revenue?” Davis said.
Davis also noted that several of the tax and fee increases included in this plan were not discussed or debated by the finance committee during the regular 2017 General Assembly session.
Though full details were not available, the plan anticipates that a statewide tax on seasonal and recreational homes would yield $32 million per year in revenue.
A 10 percent charge on fantasy sports companies’ gross receipts tied to Connecticut patrons only would yield $500,000 in the first year of the new budget and $700,000 in the second.
A 49-cent surcharge imposed on monthly cell phone bills would yield $8.9 million this fiscal year and $17.7 million in the second.
And the state’s hotel tax, already one of the highest in the nation, would rise from 15 percent to 16.75 percent.
The package also calls for $50 million to be raised in the second year of the budget by canceling yet-to-be-identified tax credits.
“There’s been significant interest, at least in our caucus, in trying to broaden the base” of the sales tax, Rojas said. Connecticut currently has sales tax exemptions worth more than $5 billion and Rojas added that the finance committee would identify those to be canceled in the 2018 legislative session.
The House was expected to begin debate on the budget Thursday night.