In order to give itself some breathing room, the Finance Committee restructured the state’s debt Tuesday in a way that also allows it to sunset the electric generation tax as promised.
While the committee won’t be taking definitive action on erasing the tax until Friday, their actions Tuesday paved the way for them to cover the amount of the tax through borrowing. Payment of the debt will be pushed off until after the November 2014 elections.
The idea was promoted by Sen. Andrea Stillman, D-Waterford, whose district includes the Millstone Nuclear Power Plant. She defended the decision to borrow in order to sunset the tax because of the adverse impact that extending the tax would have had on electricity rates in the region.
In February, the same week Gov. Dannel P. Malloy extended the tax in his budget proposal, Attorney Generals in Rhode Island and Massachusetts wrote Connecticut legislative leaders and asked them not to continue it. The two expressed sympathy for Connecticut’s fiscal situation, but said they believe the tax on electricity generation — a commodity that is bought and sold on a regional basis — will raise the rates on residents in their states.
Implemented in the 2011 budget cycle, the electric generation tax is generating about $76 million a year and the company paying the bulk of that — about $42 million — is Dominion, which owns the Millstone Nuclear Power Plant in Waterford. It was scheduled to sunset this year, but because he was facing a projected $2.2 billion shortfall over the next two years, Gov. Malloy decided to extend the tax another two years in his February budget proposal.
The Malloy administration said it’s waiting to see the full legislative budget proposal before commenting on where the Finance Committee seemed to be heading Tuesday.
It’s a direction some Republican lawmakers don’t want to be headed.
“We’re just pushing our debt down the road,” Rep. Vincent Candelora, R-North Branford, said. “It’s not a good idea.”
House Minority Leader Lawrence Cafero, R-Norwalk, agreed. He said it’s just perpetuating a problem into the future.
He suggested there’s other borrowing the state does where the return on investment is smaller, like the Teachers’ Retirement Fund. Ideas like that should have been considered if the committee is serious about eliminating this tax, he added.
Kevin R. Hennessy, director of federal, state, and local affairs in New England for Dominion, applauded the direction the Finance Committee’s move to sunset the tax.
“The Finance Committee decided it wanted to honor the state’s commitment to sunset the tax and made sure it wasn’t going to do anything to raise electricity rates,” Hennessy said. “We view this as a positive step.”
But Sen. Minority Leader John McKinney, R-Fairfield, balked at the idea of borrowing to eliminate a tax.
“I refuse to believe that the state’s only options are an unfair tax today, or borrowing and paying higher interest tomorrow,” McKinney said. “The state needs to cut spending. I certainly hope that the passage of this bonding bill isn’t an indication that the Democrats plan to follow suit with the governor and propose another unaffordable state spending increase when they announce their budget on Friday.”
The Finance Committee voted mostly along party lines Tuesday to restructure the 2009 Economic Recovery Notes and reduce debt service $46 million in 2014. It also recommended a decrease in the debt service payment on the bonds to only $12 million annually.
According to the Office of Fiscal Analysis, this change is projected to cost an additional $14 million in interest above the $218 million in interest it would have cost under the governor’s proposal.
“All we’re doing is backloading the debt by paying smaller amounts in the first two years, and larger amounts in the last three years,” Candelora said. “It doesn’t erase the problem.”
McKinney said he doesn’t understand how the Democrat-controlled Finance Committee could take a proposal from a Democratic governor and make it worse.
“You would never teach your children to manage debt by paying credit cards off with credit cards, but that’s exactly what the state of Connecticut is doing and, eventually, we’re going to expect our children to pick up the tab,” he said. “This is a poor start to the legislative budget process and I implore Democratic leaders to revisit this mistake. I will not support any budget that employs such irresponsible gimmicks.”
The Finance and Appropriations Committee are looking to release their budget proposals on Friday.