(Updated 8 p.m.) Democratic legislative leaders and Gov. Dannel P. Malloy announced Wednesday evening that they had reached a two-year budget deal that lowers the tax increase in the first year by $116.7 million and reduces spending cuts by about $125 million.
The budget deal they struck will be debated Thursday by the Finance and Appropriations Committee and it assumes Malloy will emerge victorious in getting $2 billion in concessions through negotiations with state labor unions. Malloy said the General Assembly could vote on the budget even without the labor concessions some time next week.
Slim on details, four pages of numbers distributed by the Democrats show they nixed Malloy’s proposal to increase taxes on boats and automobiles. The deal also restores the suspension of the sales tax for a week in August, continues the sales tax exemptions on haircuts, and maintains the sales tax on spa services.
In addition, the deal would eliminate the throwback rule, which would collect taxes on out-of-state business conducted by Connecticut companies, and instead increases the corporation tax from 10 percent to 20 percent. Sources say these two changes were the result of Malloy’s dinner in late March with the chief executive officers of five of the state’s largest employers.
Malloy’s Budget Director Ben Barnes said they heard complaints from small manufacturers that the throwback rule would hurt them and several large companies told them they prefer the certainty the corporation tax provides. Of course, based on a Department of Revenue Services report from earlier this year it’s also clear about two-thirds of Connecticut’s companies pay the minimum $250 or nothing in corporate taxes.
While rank-and-file lawmakers were briefed on the contents of the budget deal, none were provided with specifics aside from a one-page document with few details.
Sen. President Donald Williams, D-Brooklyn, said the decreased tax increases and reductions in spending will be made up with federal revenue from changes made to the hospital provider tax. But details will remain scarce until the full budget is released Thursday morning.
“This is not the end of the budget process but it is a giant step forward,” Williams said.
Standing side-by-side with legislative leaders, Malloy made a similar statement about the deal, saying it isn’t a celebration, but it is one step forward in the budget process. “We are at a point sooner than I anticipated we would be,“ Malloy said.
Malloy has asked the General Assembly to get him a budget by May 6.
“From the beginning, we talked about how making certain ‘shared sacrifice‘ also needs to be ‘fair sacrifice,’” House Speaker Chris Donovan said, echoing a letter signed by 65 members of his caucus more than a week ago.
Malloy’s modification to the income tax structure and restoration of a property tax credit in reduced form last week went a long way toward meeting Donovan’s call for wealthier residents to pay more.
While Malloy argued it was a matter of how little time he had to make a deal, Republican leaders complained that were again left out of the budget discussions.
Republicans called the budget proposal a “one-party vision of Connecticut.”
“From the inception [Democrats] have said ‘we don’t need you guys.’ Republicans, people who represent one third of the state of Connecticut. Even though this governor won by the slimmest of majorities, he wants this to be a completely Democratic solution,” House Minority Leader Larry Cafero said.
Senate Minority Leader John McKinney said the only thing about the announcement that surprised him was that Malloy continues to say he is working with Republicans.
“I think he just needs to be honest about that. Yes, he’s called us. Yes, he’s talked to us. He hasn’t taken any of our ideas. He hasn’t had serious discussions about any of our ideas,” McKinney said.
McKinney said that when asked about the Republican budget, the governor said that the time for negotiating the budget was running out and then followed the statement by saying an agreement had been reached much sooner than expected.
Republicans also criticized the budget deal for the assumption that Malloy will get $2 billion in concessions from the state employee unions.
Cafero said that as long as he can remember, the state has never passed a budget with $2 billion that has not been solidified in some shape or form. The state’s constitution calls for a balanced budget, he said, adding, “We’ve just heard that the governor is willing to sign a bill without having $2 billion worth of that budget settled.”
However, that may be a gross understatement since every budget passed over the last decade has assumed some unspecified lapses.
The two also cautioned the legislature against quickly passing Malloy’s budget. If they pass the budget but Malloy fails to get the concessions, they’ve made a big mistake, McKinney said.
McKinney said the legislature has not even committed to coming back to re-adjust if an unbalanced budget is passed.
“That’s just a complete abdication of our role as a legislature,” he said.
A State Employee Bargaining Agent Coalition spokesman said he was pleased to see “that the budget has seen some improvements, such as asking the very rich to pay more of their share, as opposed to ideas, like eliminating the property tax credit, that further hurt struggling working and middle class families.”
However, “We would still like to see much more asked from big multi-state businesses and the very rich who have so far been the only ones to share in our state’s so-called economic recovery,” Larry Dorman, SEBAC spokesman, said in a statement.
“We will continue our discussions with the governor to see if common ground can be found between him and those struggling middle class families who happen to work for the state.”
Editor’s note: The budget does not nix the tax on airplanes.