Malloy Proposes Tax Hikes To Help Solve CT's Massive Budget Deficits

An unsavory mix of effective tax hikes, spending cuts and the looming possibility of more than 4,000 state employee layoffs is part of Gov. Dannel Malloy’s proposal to close a $1.7 billion budget deficit.

Many structural changes within the budget would provide more state aid to impoverished communities and significantly less to wealthier communities on a sliding scale. That is achieved through a new education cost-sharing formula, shifting a third of teacher pension obligations onto towns and other means.

Malloy’s proposal would also remove the property tax credit, which would cost about 874,000 middle class tax filers about $105 million per year.

Some of the biggest winners under the proposal include Hartford ($47 million more in state aid), Waterbury ($43 million), Bridgeport ($19 million) and Stamford ($6.3 million), according to budget documents released by the Malloy administration.

The biggest losers include Groton ($12.9 million less in aid), Milford ($11 million), Wallingford ($8.1 million), Greenwich ($6.6 million) and New Milford ($6.6 million less).

“We are a small state, and our towns are interconnected,” Malloy said. “Growth in Hartford means growth in Bloomfield and Windsor. More jobs in Waterbury means more jobs in Cheshire and Beacon Falls.”

Malloy's budget assumes Connecticut's economy will grow by 1.2 percent in fiscal year 2017 and accelerate to 1.8 percent by fiscal year 2020. That lags behind the total U.S. economy, which is projected to reach up to 2.6 percent growth before slowing to 2.1 percent in fiscal year 2020.

At the same time inflation is expected to increase to 2 percent in fiscal year 2017 and climb up to 2.6 percent by 2020, according to budget documents released by the Malloy administration.

A Tough Pill to Swallow for Some Towns

Asked if the new system rewards poor fiscal policy, Malloy’s budget secretary Ben Barnes said that municipalities that receive significant state aid will be subject to levels of oversight.

“Anyone who is getting large increases in aid is subject to significant review and oversight by a state panel,” Barnes said.

At the highest levels, that will include a state municipal review board, which will be able to reject things, including collective bargaining agreements and bonding.

Similar questions came up when Hartford Mayor Luke Bronin visited nearby towns in an effort to pitch a regional system for some services. Some nearby town residents bemoaned Hartford’s decision to build a $70 million baseball park for a minor league team that already resided in a nearby town while the city faced significant financial issues.

Barnes was also asked by a reporter how the governor’s administration expects to pass a budget with many more municipal aid losers than winners. Barnes said it’s a challenging budget for many people, but that overall Connecticut will win if more municipalities are on solid financial footing.

For the first time as governor, Malloy will have to deal with an evenly split state Senate when forming the state budget.

Malloy said as a former mayor he understands the view from town hall.

“There will be voices in some communities who want to know why their town should receive less funding, while others receive more,” he said. “I know those voices will be well represented by each of you in this chamber.”

He added that his budget leaves $75 million in municipal aid unallocated in the first year of the budget and $85 million in the second year.

“This is my way of saying to you – the legislature – that I am ready to negotiate,” he said in his budget address. “I am ready to hear your ideas on where that unallocated money is needed most.”

Last week Malloy proposed shifting about $400 million in teacher pension obligations from the state to local municipalities. The rationale is that wealthy school districts that have higher pension obligations should share in the burden of funding them.

The pension obligation shift along with cuts to education aid will likely force some towns to raise their own taxes or cut spending to compensate.

Malloy said that in the past year the state contributed $24 million for Greenwich teacher pensions, which has a current enrollment of 8,800 students. The 10,000 student enrollment New Britain school system on the other hand cost the state $18 million in teacher pension costs.

Already Republicans have bemoaned the plan and said it doesn’t solve any issues.

“Rather than pay the state out of your right pocket, this asks you to pay the state out of your left,” said Senate Republican President Pro Tempore Len Fasano. “It’s not a solution; it’s just passing the problem on to municipalities. We need to be focused on structural changes that solve a problem, not pushing state responsibilities on to municipal government.”

Labor Agreements Still an Outstanding Issue

Malloy’s budget proposal assumes $700 million of the budget deficit will be closed by collective bargaining concessions from state employees.

Those negotiations are ongoing. A contingency plan calls for more than 4,000 state employee layoffs if concessions aren’t made.

“If we stay at the table, if we treat one another with respect, and if we recognize that we all want what’s best for our state, then we can – and will – get this done,” Malloy said.

Barnes wasn’t able to give a clear answer Wednesday about when layoffs would have to occur in order for the state to close its budget deficit should negotiations fail.

Last year, layoffs started in April in order for the state to start saving money.

“The alternative of mass layoffs is extraordinarily hard for us to achieve,” Barnes said.

Education Cost Sharing

Malloy is proposing a new education cost-sharing formula in the wake of a state Superior Court decision that called into question how the state doles out educational aid to towns.

The new formula will rely on Husky A data instead of free and reduced lunch price data to figure out aid levels. It will also take into account current enrollment and shifting demographics of towns and cities.

Malloy also proposes decoupling special education aid from total educational cost sharing aid, something other states have already done. Towns would be reimbursed between 54 and 0 percent depending on their ability to pay.

Overall total education cost sharing aid will go up in the new system.

Other Changes Abound

Smokers won’t be happy either, as Malloy proposed increasing the cigarette tax by 45 cents per pack, which would bring levels up to New York State taxing levels.

The budget would also allow municipalities to tax hospital land and buildings. It would offset the hospital’s loss with a supplemental payment from the state.

Overall, based on current data, municipalities could levy up to $212 million across the state in additional taxes. It would be up to each municipality on whether they would levy a tax and if so by how much.

Malloy has also proposed eliminating certain unfunded state mandates on muncipalities.

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