Fiscal panel’s formula for revitalizing CT provokes Democratic resistance

Progressive Democrats in the General Assembly pushed back Friday against the state’s new fiscal stability panel, charging its recommendations shortchange key priorities, like poor cities, education and social services.

Meanwhile, the leaders of the Commission on Fiscal Stability and Economic Growth conceded they were limited by severe time constraints. But co-chairs Robert Patricelli and Jim Smith also asserted the best way to invest in all of these priorities is to end the cycle of state budget deficits and jump-start a lagging economy.

The co-chairs participated Friday in a marathon public hearing in the Hall of the House, answering questions from members of four legislative committees: Appropriations; Commerce; Finance, Revenue and Bonding; and Planning and Development.

“I’m only seeing sacrifice from the same people over and over again,” said Rep. Robyn Porter D-New Haven, who charged the recommendations threaten to worsen an income inequality trend of historic proportions. “When do we strike a balance?”

According to several nationally recognized policy think-tanks, income inequality in the United States is at its most extreme since 1928, just before the stock market crash that launched the Great Depression. And New York and Connecticut spearhead that trend, with the wealthiest 1 percent of households in those states earning more than 40 times the average annual income of the bottom 99 percent.

The 14-member commission’s March 1 report featured a wide array of recommendations centered on a major redistribution of state taxes — primarily reducing income tax rates across the board while boosting the sales and corporation levies.

But because the wealthy pay the majority of state income taxes, they also would benefit disproportionately from a rate reduction.

Porter questioned why the commission says this and other tax changes that benefit the wealthy — such as eliminating tax on estates valued at more than $2 million — should occur right away, while a proposal to bolster the minimum wage to $15 per hour should be implemented gradually, taking until 2022.

“Why do we have to wait? Why do they get immediate relief and we get gradual relief?” she asked, adding that severe income inequality also strongly reinforces racial inequality.

Rep. James Albis, D-East Haven, cited a 2014 state tax incidence report showing that Connecticut’s heavy reliance on property taxes to fund municipal government “is incredibly regressive” and shifts a huge burden onto lower-middle- and low-income households.

That report found households earning less than $48,000 per year effectively pay nearly one-quarter of their annual income to cover state and local taxes.

Rep. Brandon McGee, D-Hartford, vice chair of the legislature’s Black and Puerto Rican Caucus, said the committee’s recommendations failed to address the need for greater spending on programs to reintegrate prison inmates into the workforce.

He and Rep. Chris Soto, D-New London, both said the report lacks bold ideas on how to revitalize Connecticut’s poor urban centers.

“Frankly, you cannot have a conversation on fiscal sustainability and economic growth without having a conversation first” about these urban priorities, McGee said.

And Rep. Toni E. Walker, D-New Haven, House chair of the legislature’s Appropriations Committee, said she fears a commission proposal to cut $1 billion from the state’s nearly $20 billion annual operating budget would inevitably reduce municipal aid — particularly to cities.

“Candidly, I would agree we came up a little short on the cities,” said Patricelli, a retired health care executive from Simsbury. He added that the high property tax rates in Hartford and other urban centers hinder economic growth. “They really are fighting with one or more hands tied behind their backs.”

Patricelli also noted the commission, created last October by the legislature and appointed earlier this winter, had just under 11 weeks to undertake a Herculean effort: Determine how to jump-start an economy that has underperformed since the last recession and is bogged down by massive state debt tied to cash-starved, public-sector pension programs?

Given those constraints, he said, the panel gave top priority to stabilizing a deficit-plagued state budget and altering a tax system that commission members believe hinders economic growth.

“Having a strong economy makes us able to make the kind of investments you would like to make,” Smith, who also is chairman and former CEO of Webster Bank, told Porter.

Patricelli also urged those critical of the report to consider that commission members tried to craft a package that might pass in a sharply divided, partisan legislature.

Democrats hold a slim 80 to 71 edge in the House while the Senate is split 18-18. Unless a plan reflects concerns from both sides of the aisle, he said, it has no chance for success.

“It does not not mean we don’t care about” income inequality, he told Porter. “If minimum wage were moved up faster, that would be fine with me. Can you get the votes?”

The commission has received endorsements from the Connecticut Conference of Municipalities and from the state’s association of Realtors. Both groups have said that while some of the commission’s proposals would be difficult to accept, they believe the overall plan would help Connecticut prosper.

The commission is trying to win legislative approval for a report that offers a broad array of strategies. Other proposals include:

• Eliminating $750 million in tax credits and exemptions, most of which are aimed at consumers.
• Ending  collective bargaining for state employee benefits after the current contract expires in 2027.
• Establishing electronic tolling on highways and raising gasoline taxes to fund a major transportation initiative.
• Empowering municipal coalitions to add one-half of 1 percentage point to the sales tax rate to fund regional services and diversify local budgets that rely excessively on property taxes.
• And building a major new college campus focused on science and engineering in a major Connecticut city.

Republican legislators also questioned portions of the report Friday.

Sen. Len Suzio of Meriden pushed back against tolls, questioning whether Connecticut needs to dramatically increase spending on transportation.

Sen. Toni Boucher of Wilton questioned whether a regional sales tax surcharge would help urban centers or weaken their economies.

“Is that going to benefit you?” she asked Waterbury Mayor Neil O’Leary, president of the Connecticut Conference of Municipalities, when he testified at the public hearing in favor of the commission’s plan.

“I don’t know if I’m all that comfortable with the regional tax plan,” he said, but added that Connecticut can’t afford to do nothing. “Any conversation at this point is a welcome conversation.”

Correction: An earlier version of this story incorrectly referred to Rep. Chris Soto, D-New London as Juan Soto.