(Updated 1 p.m.) Gov. Dannel P. Malloy’s administration is scrapping plans for a $55 taxpayer refund and a supplemental pension payment as tax revenues come in “hundreds of millions” of dollars less than expected.
Malloy’s Budget Secretary Benjamin Barnes informed the legislature of the change of plans in a letter Monday morning.
“We have not yet established consensus revenue, but will by April 30. Any surplus this year will be deposited into the Rainy Day Fund. We do not anticipate enough revenue to provide a tax refund or to make a supplemental pension payment, as we had hoped in January,” Barnes wrote.
Malloy had proposed using $155 million in state surplus funds to give $55 sales and gas tax refunds to an estimated 2.7 million people. However, last week the Office of Fiscal Analysis cast doubt on the proposal, saying income tax collections were coming in weaker than expected.
As of Friday the nonpartisan Office of Fiscal Analysis said the state is $323.9 million or 22.4 percent below projections and still needs to collect $510.7 million by April 30 to reach its goal.
In his letter, Barnes said that “based on the income tax collections received so far, it is clear that taxes on capital gains in 2013 will be hundreds of millions below expectations.” He said the January, 2013 expiration of the Bush tax cuts hurt revenues more than state budget analysts predicted.
“At the end of 2012, many investors across the country realized capital gains in order to take advantage of the lower tax rate. This in turn created a large federal tax penalty on capital gains realized in 2013 if those assets were held less than one year,” he wrote.
Speaking to reporters Monday afternoon, Malloy defended the refund policy.
“It wasn’t a gimmick,” he said. “I happen to firmly believe and still believe, when we have lots of money come in, well in excess of what we otherwise predict, that should be shared with taxpayers, absolutely. Let’s be very clear — my position is not different, circumstances are different.”
Despite lower-than-expected revenues, the governor said “the economy is actually doing pretty darn well.”
House Minority Leader Lawrence Cafero disagreed and seized upon Barnes’ mention of the impact of the Bush-era tax cut expiration. He said economy was “not going well.”
“How in God’s name can a $55 tax rebate plan have something to do with George Bush? It is beyond my comprehension. You screwed up. You did the wrong thing. Take it on the chin and move on,” Cafero said. “George Bush?”
Cafero said he believed revenue projections would continue to decline. He said he thought the size of the state surplus had dropped from $504 million to about $100 million. Cafero said the budget policies proposed by Republicans this year were based on the same estimates and would also need to be re-evaluated.
“We all have to re-examine what we’ve put forth. It was based on certain assumptions that as we’re seeing, based on these receipts, are no longer true. You have to act accordingly. So I understand why the governor did what he did. I get it,” he said.
Rep. Craig Miner, R-Litchfield, said he thought the contribution to the state employee pension plan made good actuarial sense, if it was done for that purpose. But “if he did this for politics I think it shows how shallow he believes people in this state are.”
As for the $55 refund, Miner said there’s no doubt in his mind that it was based on politics.
“He’s going to have to pay a political price,” Miner said. “There is not one person I spoke to in this building who thought that was a good idea.”
He said Republicans are still waiting for a seat at the negotiating table, but so far have been ignored. That means the Democratic Party “own these decisions, as well as the deficit we’re headed for.”
A poll conducted in March by Quinnipiac University suggested that a majority of voters viewed the rebate as a “political gimmick.” Of those polled, 63 percent reported disapproving of the idea while 22 percent said they believed it was good public policy.
Majority Leader Joe Aresimowicz said Democrats are being responsible and looking at the numbers. He said they start the budget process in January and February and keep a close eye on the numbers. Sometimes those numbers don’t end up where you think.
“No matter what the outcome you have to back off and do what’s best for the state,” he said.