Republicans and Democrats were unable to agree on a more than $1.7 billion tax package for the next two years, but they were able to agree on a bill that changes how the state looks at the revenue and taxes it collects.
Shortly after a party-line vote on a bill that increased numerous taxes, Republicans and Democrats on the Finance, Revenue, and Bonding Committee unanimously approved a bill to move more revenue from certain taxes to the Rainy Day Fund.
State Comptroller Kevin Lembo’s proposal takes what he has determined to be the two most volatile revenue streams — the corporation tax and portions of the personal income tax — and applies a formula that requires automatic deposits into the budget reserve fund whenever revenue exceeds historic norms. It also increases the cap on the fund from 10 percent to 15 percent of net general fund appropriations.
The “vote by the Finance Committee reflects the broad, bipartisan support for budget stability,” Lembo said Wednesday. “This proposal — making changes to the Budget Reserve Fund deposit formula — will put the state in a better position leading into the next recession, requiring fewer crisis-driven budget cuts, tax increases, or reductions in aid to towns and cities.
He added that “had such a deposit formula been in place since the inception of the income tax, Connecticut would have had a strong recessionary seawall in place — large enough to escape emergency tax increases or damaging program cuts.”
There has been no opposition to the proposal this year, but Democratic Gov. Dannel P. Malloy’s administration has been lukewarm to it.
“This is an interesting idea that has been tried in other states,” Office of Policy and Management Secretary Ben Barnes said in January when Lembo first pitched the idea. “It is difficult, though, to come up with a mechanism that would tie the hands of future legislatures while giving enough flexibility to respond to unmet state needs.”
The bill would require a three-fifths vote of the Appropriations and Finance Committees to stop an automatic transfer of revenue from the general fund to the Rainy Day Fund.
At a public hearing last week, Lembo said the rigid structure of the plan takes away some of the flexibility lawmakers have in dealing with the budget, but it enhances the ability of municipal governments and nonprofit organizations to plan their own budgets.
Predictable revenue is easier to plan a budget around, he said.
Sen. John Fonfara, D-Hartford, said the bill was the most important issue the committee addressed this year. He characterized the issue as one that is bigger than either party and bigger than politicians themselves; instead, it’s about sustaining programs and services that people believe in.
There is currently about $519 million in the Rainy Day Fund. On Friday, Lembo will release his projections regarding the 2015 budget. Earlier this month, before the April 15 income tax filing deadline, he estimated the state would end the fiscal year with a $172.8 million deficit. It’s still unclear how the Malloy administration will make up the deficit, since there is only two months left in the fiscal year.
Republicans sent a letter to Malloy on Thursday and asked if he planned to use the Rainy Day Fund to help close the 2015 budget deficit.
Senate Republican leader Len Fasano, R-North Haven, told the governor that revenue collections, which will be released Thursday afternoon, are expected to fall short of projections.
“If you plan to take money from the state’s Rainy Day Fund to close the shortfall I would like to know so that I can reflect any reduction to the fund in the Republican budget proposal for the next biennium,” Fasano wrote. “Our budget is the only proposal on the table that is balanced and below the state spending cap and Republicans remain committed to ensuring that it accurately reflects the status of Connecticut’s finances.”
A spokesman for Malloy dismissed Fasano’s letter as “yet another partisan press release.”
“Yet another angry letter from Len Fasano, who has offered no way to pay for anything he has promised,” Devon Puglia, the governor’s spokesman, said. “The Republicans simply don’t have a serious budget or a serious plan, putting forward a document that’s out of balance and devoid of realistic ways of paying for their proposed spending. So forgive us if this is filed as yet another partisan press release.”